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Certified Distribution3/05/10 - 30/05/10 is 106,097
IAN Livingstone, BT chief executive,could be staring down a £100m-a- year black hole after announcing aground-breaking football package. The former state-telecoms firmthrew the first punch in the battleto knock Sky off its perch yester-day, announcing the UK’s first dis-counted offering of Sky Sportschannels.But the undisputed championof subscription TV appeared totake BT by surprise, waiting until just hours before the announce-ment before saying it will hike theprice it charges its customers –and BT. The telecoms giant was pre-pared to absorb a small loss butnow faces losing up to £7.08 amonth on each sports subscriber.BT immediately said it will appealto the Competition Appeal Tribunal (CAT). The price war follows a contro- versial Ofcom ruling earlier this year that Sky, whose chief execu-tive is Jeremy Darroch and chair-man James Murdoch, mustimmediately slash the wholesaleprice it charges rivals.However, crucially, the figure was linked to the amount Sky charges its own customers. By rais-ing its retail price, Sky has beenable to drag up the wholesale pricefrom £10.63 a month to £13.42 forone channel or from £17.14 to£19.07 for both. Yesterday BT would not bedrawn on how many subscribers ithopes to attract with the new package but, according to analysts,the firm is likely to be aiming for2m within the next five years.If these subscribers sign up toBT’s sports output, assuming anequal split between the pricingoptions, BT would make a loss of £102.1m a year.Gavin Patterson, head of retailat BT, said: “Investments rarely pay off in 12 months... There is a highdegree of cost to what we offer. Weare interested in growing the busi-ness in the long term.”BT says this sum will be offset by the extra subscribers to its bundlepackages and fewer customersleaving the firm. The row overshadowed thelaunch of BT’s “extremely aggres-sive” offering of live PremierLeague matches, costing as little as£6.99 a month – massively under-cutting market leader Sky, whichcreates the content.
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www.cityam.comIssue 1,168 Friday 2 July 2010
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BATTLE OF THE BROADCASTERS
BT yesterday attacked its majorTV rival, offering Sky Sports 1 foras little as £6.99 a monthSky pre-empted the BT move byhiking its wholesale prices,hitting the telecom firm hard
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BT’s Ian Livingstone (left) is set for a bloody battle with BSkyB’s Jeremy Darroch
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2 JULY 2010
Miners agreeAustralian tax
THE AUSTRALIAN government hassettled a long-running spat with min-ing firms over the introduction of amining super-profits tax.Prime minister Julia Gillardannounced this morning that profitson iron ore and coal mining in thecountry will be taxed at 30 per cent,down from the 40 per cent mooted by her predecessor Kevin Rudd.Rent tax for oil and gas resources will be 40 per cent, as part of a pro-posed law that will take effect from July 2012. The taxation threshold will be at around 12 per cent, up from thefive per cent originally planned.“The new arrangements recognisethe preference of industry for moregenerous recognition of past invest-ment, through a credit that recognis-es the market value of that invest-ment written down over a period of up to 25 years,” Gillard said. The reduced levy is the result of two months of brawls between thegovernment and mining giants.“The proposal represents very sig-nificant progress towards a mineralstaxation regime that satisfies theindustry's core principles,” said Rio Tinto, BHP and Xstrata in a joint state-ment.It has been renamed the MineralsResource Rent Tax to reflect thechanges made since Rudd was ousted.
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The real causes of the crisis of 2008
FOR all the latest furore surrounding bankers’ bonuses and the rest, wehave yet again lost sight of how the cri-sis actually began, and politicians andregulators’ central role in promotingit. There were many factors, of course, with private institutions often behav-ing foolishly – but sub-prime lending,the crisis’ central catalyst, was pro-moted by the US government andencouraged by its agencies to boosthomeownership among the poor. Weforget this at our peril.Governments have long tried tohelp the poor own their own homes,almost always for noble reasons. Someattempts, such as Margaret Thatcher’sright-to-buy council house policy, worked as it required a real paymentand targeted the aspiring, successful working class. Most other attempts, which gave homes away entirely forfree or provided subsidised loans tothose who couldn’t afford them,failed disastrously. One of the oldestattempts was Abraham Lincoln’sHomestead Act of 1862. Adults couldsimply apply and claim for freeunused land outside the original 13colonies, with the only requirement being that they improved the landand enclosed it. Around 2m home-steaders took advantage of the schemeand settled in the new West – andabout 60 per cent of them eventually failed, a little-known fact dug out by Bruce Yandle, a US economist, in hisfascinating paper Lost Trust: The RealCauses of the Financial Crisis, to bepublished in the Winter 2010 issue of the Independent Review. The evidence is clear. The subprimeproblem started off as an “affordablehome” program by which traditional,market-based constraints were erodedand private firms bullied and incen-tivised into lending badly. The impe-tus came with congressionalstrengthening of the Community Reinvestment Act, the FederalHousing Administration’s looseningof downpayment standards, and pres-sure exerted on mortgage lenders by the Department of Housing andUrban Development to lend to theunqualified. Democrats andRepublicans are equally to blame. BillClinton introduced affirmative actionquotas for Fannie Mae and FreddieMac – the government-backed and cre-ated agencies which exert a massiveinfluence in the US mortgage market, which is far from free – to buy poor-quality mortgages made to low-income families. In December 2003,George Bush signed “the AmericanDream Downpayment Act” to allow those who couldn’t afford deposits to buy homes.It worked a treat. From 1993 to2003, subprime accounted for a tenthof mortgages. In 2004, subprime’sshare rose to 26 per cent; in 2005, to28 per cent; in 2006, to 40 per cent.From 2005 to 2007, Fannie Mae andFreddie Mac bought $1 trillion in sub-prime and low-quality mortgages, inmany cases floating rate mortgagesthat everybody knew would becomeunaffordable if rates were to rise; thisintervention by Fannie and Freddieallowed the risk to be removed fromthe market. The government thus sup-ported and encouraged privatelenders to target poor borrowers whileturning a blind eye to their inability torepay, in the knowledge that it wouldsoon cease to be their problem.Everybody interested in the realcause of the crisis should google Yandle’s paper. It is a breath of freshair at a time when the abysmal quality of the present UK debate on the bub- ble, macroeconomic managementand bank regulation is little short of scandalous.
allister.heath@cityam.com
FEARS of a global slump back intorecession heightened yesterday aftera slew of negative data showed manu-facturing output slowed across the world and pending home sales in theUS crashed by a third. Tokyo’s Nikkei stock index tumbledto its lowest level since 2005, whilethe FTSE 100 plunged to its lowestlevel in 10 months dropping 2.3 percent, to 4,805.75. This is its lowestclose since 3 September and contin-ues the dismal second quarter trend where the blue-chip index notchedup a 13.4 per cent decline.In the US, the Dow Jones Industrial Average closed 0.4 per cent lower at9,732.53. The dollar dropped to aseven-month low against the yen andslid further against the euro hitting$1.25.“Double-dip is back in the lexicon,”said David Bloom, currency chief atHSBC.ECONOMICS: P11, MARKETS: P18
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Double-dip fears resurge
INSURANCE firm Aviva will tellinvestors today it expects to boost theamount of capital it generates by atleast 30 per cent this year to £1.3bn. The firm will also say its existing book will return £8bn in the next five years, in an effort to clarify its money-making potential to investors. Aviva is said to be emphasising thestatutory IFRS basis of its financialreports to make comparisons morestraightforward.“It is fair to say we will de-empha-sise market consistent embedded value [measures]”, chief financial offi-cer Pat Regan told the FT yesterday. The firm’s shares fell sharply after itmoved to the measures in 2009. The firm is set to announce the fig-ures in an analyst finance update at10.30am.
Aviva aims forclarity with its£8bn forecast
Traders are warning the global economy is in danger of a fresh slumpPicture: REUTERS
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EDITOR’S LETTER
ALLISTER HEATH
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Australian PM JuliaGillard has agreed adeal with mining com-panies just eight daysafter taking on the job
THE FTSE MISERY CONTINUES
GENERAL ELECTRIC CHIEF VENTSFRUSTRATION OVER CHINA
The GE chief executive Jeff Immelttold Italian industrialists at a dinneron Wednesday that he was worriedabout the way Beijing was treatingforeign companies. “I am not surethat in the end they want any of us to win or any of us to be successful” saidthe man who runs the largest manu-facturing company.
BEST FOOT FORWARD AS OFFICE SEEKSA BUYER
Office, the fashion-forward highstreet shoe retailer owned by Sir TomHunter, has put itself up for sale witha price tag of £170m. It has appointedHawkpoint, the boutique investment bank, and Financo, from the US, tofind a buyer. The chain was bought by West Coast Capital in 2003 for about£16m, and has since expanded from21 stores to 125.
ICELANDIC LENDERS FACE FRESH LOSS-ES AFTER CAR LOANS RULING
Iceland’s banking sector is facing afresh wave of losses after a court rul-ing raised doubts over the legality of billions of dollars of loans. Financialauthorities in Reykjavik have beenscrambling for the past two weeks to work out the implications of a land-mark Supreme Court judgment out-lawing car loans indexed to foreignexchange rates.
SEX.COM DOMAIN NAME BACK ON THEMARKET
One of the world’s most famous andfought-over internet domain names isup for sale again after the company that bought it for a record $14m four years ago faces bankruptcy. OwnerEscom LLC, a Los Angeles-based com-pany, has been unable to repay theloan it took out to purchase the namein 2006. It is now being sold by Sedo,the German domain name market-place, which said it had already beencontacted by several parties.
SECOND CREDIT CRUNCH LOOMS... BUTSOME PEOPLE DON’T NEED TO WORRY
Russians like Kensington, Mayfairand Knightsbridge but are also quitefond of Hampstead. The Americansopt for Notting Hill - can it be theinfluence of that film starring HughGrant? The French head to Fulhamand Chelsea. Each of the 51 nationali-ties now has its own preferences,according to reseach out today fromKnight Frank, the estate agents.
WILLS CUSTOMERS MAY BE COMPEN-SATED
The industry-funded body that repre-sents customers of failed financialcompanies has stepped in at Wills &Co to consider compensation claimsagainst the stricken stockbroker. TheFinancial Services CompensationScheme, which has declared Wills “indefault”, will consider individualclaims up to £50,000.
UNITE UNION URGES INQUIRY INTODEATH AT TOTAL’S LINDSEY OIL REFIN-ERY
Unite, Britain’s biggest union, hascalled for an independent investiga-tion into the death of a worker in anexplosion at Total’s Lindsey oil refin-ery. The French energy major has shutits Lincolnshire facility processing200,000-223,000 barrels of crude oilper day after the fire that also injuredtwo people. Tom Hardacre, Unite'snational officer for construction,urged the oil giant to allow “an imme-diate, independent and comprehen-sive inquiry” into the death.
UGE PLAYS DOWN REPORT THAT CHIEFJEFFREY IMMELT IS “WORRIED ABOUTCHINA AND PRESIDENT OBAMA
General Electric, the US conglomer-ate, last night sought to play downcritical comments reportedly made by its chief executive Jeffrey Immelt.
US CAR SALES SLOWED IN JUNE
Auto makers saw their US sales rise in June from the depressed level of a year earlier, but sales fell from May as jittery consumers slowed the pace of recovery in the car market. GeneralMotors said its sales of cars and lighttrucks rose 11 per cent from a yearago, while Ford Motor Co. reported a13 per cent increase Chrysler Grouphad a rise of 35 per cent. Toyota’ssales rose 6.8 per cent.
MCDONALD’S CUTS AGGRESSIVESMOOTHIE PROMOS AHEAD OF USLAUNCH
McDonald's is warning restaurants tochill out on Smoothie promotions sothe chain has adequate supply whenthe product is launched nationally this month. Smoothies, the latest inan expanding beverage line atMcDonald's, will be backed by anational marketing campaign.
WHAT THE OTHER PAPERS SAY THIS MORNING
BRITISH Airways said it had removed£1.3bn of pension risk in a deal withGoldman Sachs-owned insurance spe-cialists Rothesay Life yesterday,removing another obstacle to itsplanned merger with Spanish airlineIberia.BA will pay Rothesay for insuranceon 20 per cent of its exposure to the Airlines Pension Scheme, which pro- vides defined benefit pensions toretirees and their spouses. The news comes a week after BA announced moves to plug its £3.7bnpensions black hole by acceleratingpayments to its two most matureschemes.In April BA and Iberia signed an£5.3bn merger to create the world’sthird-biggest airline after months of negotiations, during which theBritish airline’s pension deficit had been one of the main stumbling blocks. The deal with Rothesay will notaffect the deficit, but will cut theunpredictability associated with sucha large defined benefit scheme.“The transaction does not changecontributions from British Airwaysand is consistent with the long-termaims to reduce the reliance on theemployer over time,” said BA.
BA to offloadpension risk toinsurance firm
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OIL and gas company DanaPetroleum has received a preliminary takeover approach from an unnamedcompany, the firm announced yester-day. The approach follows speculationlast week that Austrian fuel groupOMV was preparing to make atakeover bid, which sent share pricesrocketing. Unconfirmed reportsnamed the Korean National OilCompany as the current suitor. A spokesperson for OMV last week denied that the company was inter-ested in Dana. KNOC was unavailablefor comment last night.Shares in Dana closed up 3.7 percent yesterday at £11.77, giving thefirm a market value of about £1.05bn.“The board of directors of Dananotes the recent movement in theCompany’s share price and confirmsthat it has received a very prelimi-nary approach which may or may notlead to an offer for the Company,” itsaid in a statement released to thestock market yesterday evening.“Discussions are at a very early stage and as such there can be no cer-tainty as to whether any offer will beforthcoming nor as to the level at which any offer might be made.” A spokesperson for Dana would notcomment on matters beyond thefirm’s announcement.Dana, part of the FTSE 250, has oil and gas assets inEgypt, the North Sea and Morocco. Itsaid last week its offshore Bambooproject in the Nile Delta had failed, but that it had struck oil in Egypt.
Dana revealstakeover talkas shares rise
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Don’t let it go too cheap
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ERRENIAL takeover favouriteDana Petroleum has finally gotan official offer. At 1,176p ashare, Dana is valued at £1.09bnand KNOC’s bid is believed to bearound £1.5bn. But investors should-n’t let it go on the cheap. Yes its recentupdate declaring that the Monkwellgas discovery in the UK North Sea wastoo small to be economic was disap-pointing, but it is exactly this thatmakes Dana “a cleaner kill” accordingto broker Evolution. “The fact thatDana only has two major wells left todrill this year, should mean that thestarting point for valuation is thatmuch closer,” it says. At the end of 2009, Dana hadproven and probable reserves of 223m barrels of oil equivalent, producingfrom 36 fields in the UK North Sea,Egypt and in North and West Africa. With 2009 revenue of £397.3m, andnet profit of £22.m, KNOC will have topay a significant premium. Typically this should be 40 per cent – or £16.45 based on Dana’s closing price yester-day. KNOC, which has $6.5bn foracquisitions to spend this year alone,can afford to cough up more.
BOTTOMLINE
Analysis by Katie Hope
DANA’S advisers have had a lot ontheir plate in recent months. StephenBowler helped the firm take overDutch oil group Petro CanadaNetherlands in June for £270m, whilecolleague John Macgowan was advis-ing industrial group BSS during itsongoing £553m takeover by TravisPerkings.Bowler has been director of mid-capbusiness at RBS Hoare Govett since1999, and has a wealth of experiencein the oil and gas and mid-cap sec-tors, including acting for Mouchel onits recent takeover approach from VTGroup and advising on equityfundraisings by the likes of Tullow Oiland Northgate. He holds a BSc in eco-nomics from the University of Exeter,where he graduated in 1995.MacGowan is one of RBS HoareGovett’s most experienced corporatebrokers, most recently advising BovisHomes during a £60m placing inSeptember and Sherborne Investorsin its £105m rights issue.Corporate broker Hoare Govettwas itself subject to a takeover in2007, when RBS bought it as part of a deal to purchase holding companyABN. It acts as broker to around adozen FTSE 100 companies andemploys about 60 staff.
JOHNMACGOWANDIRECTOR INCORPORATEBROKING AT RBSHOARE GOVETT
ANALYSIS lDana
9501,0001,0501,1001,1501,2001,2501,3001,3501 Jul11 Jun21 May30 Apr12 Apr
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