Green could come calling again

MARKS & Spencer is a very different company since Stuart Rose was parachuted in as chief executive amid the assault from Philip Green.

His 17 years of past service with M&S means a familiarity with the culture which was never there for his immediate predecessor Roger Holmes. Colleagues say he is much more sure-footed in the core womenswear environment.

All of this ought to be encouraging for investors. M&S's new clothing ranges are receiving a positive reception. Despite adverse comment at the time of the bid battle, there is nothing wrong with the fundamental product offering.

But this does not mean that Rose will be able to deliver the 400p exit price which Green placed on the table with his highly leveraged offer. At present the shares are being held up by the impending £2.3bn tender offer (portrayed as worth £1 per share), the bribe that the M&S board offered to shareholders to keep them warm.

But we have been here before. Luc Vandevelde also reorganised the capital and bought the company some time, but not long afterwards the shares were falling again.

New research by Philip Dorgan of Panmure Gordon-Lazard cast doubts on whether Rose can deliver on his earnings promises. Indeed, with weak summer trading there is even the whiff of a profits warning on the cards.

The broker argues that while its prices are comparable with Next, its closest clothing rival, the latter has been more successful in growing the business and trading its customers upmarket.

The real challenge is coming from the supermarket assault. Asda's clothing prices are 60% less than M&S and Tesco's are half. Moreover, wage costs at M&S are 42% higher than at rival Next and 58% stronger than Tesco. You don't have to be a genius to recognise this as the economics of the madhouse.

Moreover, the variety of size of M&S stores makes them something of a merchandising nightmare. Then there is the food problem.

The person who was meant to put it right, Justin King, flounced off to Sainsbury. The up-market territory M&S occupies has been invaded by Waitrose, Sainsbury et al, so margins are likely to come under pressure. Yet food accounts for 40% of group profits.

Dorgan says the shares are a sell. One wouldn't go that far. M&S remains one of the great profit-generating clothiers in the world. But if the Rose initiatives were to turn to custard, the ubiquitous Green could still sail back into view.

Nuclear nightmare

SUCCESSIVE British Governments owe a huge apology to shareholders in British Energy. John Major's hapless administration recklessly privatised the nuclear generator in his final days glossing over the frequency of plant failures and the enormity of nuclear liabilities.

Labour's stewardship has not been much better. The deregulation of the wholesale market in electricity under Labour's watch rendered nuclear-generated electricity uneconomic in an era of cheap oil and gas. The promised base price for nuclear power proved worthless and BE was driven to the wall.

Had it not been for the drubbing the Government took for its abrogation of shareholders' rights at Railtrack, BE would almost certainly have been put in the hands of the receivers too.

Instead, the Government went for a botched rescue in which it and the bondholders were handed most of the equity. Shareholders were left to drown.

Over the last couple of months there has been a spirited effort by Polygon and Brandes to rescue something for the investors. They spotted that the finances of BE were improving dramatically with the soaring price of energy.

There has been criticism of the motives of these investors who are seen as opportunists in for a quick buck, aiming to torpedo a delicately negotiated rescue plan. But the cause that they have embraced, that of the private shareholders who were legged over, is an honourable one.

The irony is that the person likely to put paid to the rebellion is Edward Leigh MP, who has quantified the nuclear liabilities as £3.9bn if the rescue plan fails and £1.7bn if, as likely, it passes muster.

Leigh should know. He was, after all, one of the Tory ministers at the DTI responsible for this whole bungled privatisation.

Crude price threat

THE Bank of England is expected to leave rates unchanged today as the economy hits a soft spot. But the influential National Institute believes that if oil prices were to remain permanently at above $42 a barrel the Bank would have to raise interest rates further to control inflation. Not a cheerful note for homeowners.