CITY DIARY
CHRISTOPHER FILDES
Signs of a Whitehall bypass under construc- tion are already there to be seen. The Con- federation of British Industry and the Trades Union Congress have let it be known that they want to run an industrial relations commission of their own, rather than have an official one foisted on them as the Donovan report recom- mended. Another straw in the wind was Mr George Woodcock's attack on Neoc—where, it might be said, Whitehall brings the two sides together—as a talking shop. But a clearer and more startling sign may follow. The cat is understood to be considering plans for a con- tractual savings scheme, with its own unit trust, and wants to bring the nic in as a partner.
The argument I take to be this. Although many companies run schemes for selling or dis- tributing their shares to their employees, these have obvious limitations. Chief is the impor- tance of treating savings as something for a rainy day: a man is most likely to need his savings when his job is threatened, which is when his employer's shares are most likely to be depressed. In any case, the small saver needs to spread his risk, which of course the unit trust principle makes possible.
Again, many companies run their own National Savings groups, with arrangements for deducting so much a week from pay packets— that is, for those who 'contract in.' But these depend either on individual initiative or sheer habit—many were started as part of the war effort; and a conscientious manager may well hesitate before urging his workpeople to put their money into what has proved, over the years, so poor an investment.
The case for a contractual savings scheme, with a strong element of equity to guard against inflation, is a strong one. But the Government has been slow to move. If the cm now does the job for it, there will be obvious difficulties. The first would be to make clear that this is not a bosses' racket or confidence trick : an indus- trial variant on the Post-War Credit scandal. This, I understand, is where the 'roc would come in. If the scheme were a joint venture of the cm and ruc—if, even, the TUC were prepared to accept something analogous to a trustee's position—this would authenticate it to its potential savers as nothing else could.
This, too, would have catches; of which the most obvious is that the TUC has a unit trust
of its own. The Trades Union Unit Trust, which began as a means of investing union funds in equities, is now open to individual subscribers. But if the principle could be accepted, the way would lie open to an econo- mic development of the first importance, and (as it happens) one which would rebuff the policy of direct intervention which, so far as it has been consistent in anything, this Govern- ment has consistently followed.
One reason why the devaluation of sterling was put off so disastrously long was that it stood to lose the Bank of England a lot of money. Losses on the forward contracts may have come to about £200 million. So would the revaluation of the mark (which Dr Schiller hasn't come here to discuss—oh dear, no) mean a windfall for the Bundesbank? No: in order to stop the mark going above the limits within which the IMF allows it to fluctuate, the Bundes- bank has been buying dollars for years. Writing the dollar down against the mark would mean a nasty loss. So one reason why the revaluation of the mark is being put off so disastrously long is that it stands to lose the Bundesbank a lot of money. Do you ever feel you can't win?
What would happen when Gussie Fink- Nottle, lifelong teetotaller, distributed the prizes at Market Snodsbury Grammar School when on the outside of a pint or two of neat spirits? "The imagination boggles, sir." . . . I inspec- ted my imagination. Jeeves was right. It boggled.'
Mine, too. Possibly I have a lower boggling- point than Wooster, possibly my resistance has been sapped in a year when there has been so much to boggle at, but if Plessey and S. G. Warburg could have seen their way to giving my imagination a moment's rest, it would have been much appreciated. Their £260 million bid for English Electric leaves me holding des- perately to the two points of reference on which I can rely.
The first is that, if I held English Electric and you offered me 71s 101c1 a share (which is about what the Plessey bid is worth), I should bite your hand off in my hurry to accept. Here's English Electric, a very heavily geared com- pany slogging its way through a long period of big orders which tie up capital and carry low margins. Before the bid it was rated at about 52s, or nineteen times earnings. Is it now worth 71s 10I-d on its own?
If not, how would a merger with Plessey make it worth that price? There are only two possible ways. One would be to rationalise, as the euphemism has it; but there are not many areas where the two groups' activities overlap. The second way would be to improve the standard of management. But there is no prima facie case for preferring Plessey's man- agement to English Electric's. Plessey, indeed, has been criticised as not being able to hold its managers : In the last three years I believe it has shed one deputy managing director, one director, five group directors, four general managers, six financial controllers, a company secretary, a head of personnel, and divisional managers to a number that runs into double figures.
These arguments have meant that the bid has not everywhere been accepted as being for real. After all, Plessey's market capitalisation is smaller than English Electric's: if the merger goes through and there is nothing to show for it, the effect will be seen in Plessey's share price; which affects the attractiveness of the bid itself. But that brings us slap up against the second fixed point: whatever anybody else may be playing at Warburgs is deadly serious. It has not made its formidable name by getting into joke situations. And to keep that name at its brightest, it could use a big win, soon. It's a long time since the last one, which, I suppose, was Reed Paper's bid for Wall Paper Manufacturers. It advised Philip Morris in its bid for Gallaher, and though it is scarcely to be blamed for not acting as Morgan Grenfell did, the plain fact is that it didn't win.
You see what I mean? Jeeves was right.
I have been thinking this week of Lord Balogh—and let no one say a word against the only man ever to have told me that I looked resplendent. A pupil of his, and friend of mine, was once reading an essay to him when Lord Balogh stood up, said: 'You are a bloody fool: I am going to Rome,' and shot straight out of the room, the college, the city, and the country. Usually one admires Lord Balogh's arguments but suspects his conclusions. Now, though, I dispute his premise but shall follow his example, Back in mid-September.
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