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A Real Challenge To The Proposed Lloyds TSB/HBOS Merger

December 2, 2008

Analysis of:Scottish Group Files Legal Challenge to Lloyds’s HBOS Takeover | www.bloomberg.com

This is a serious challenge to the merger.  It is nothing like the previous attempts by various Scottish grandees to engineer an alternative deal for HBOS. The Competition Appeal Tribunal has a good record of hearing urgent merger cases quickly, and is unlikely to be affected by political pressures, even from Lord Mandelson. If the application is successful, which it could well be, then the Government's decision to clear the merger will be annulled.  This is not a purely procedural step: the Government would have to come up with a good reason for clearing the deal (which I don't think exists) or refer it to the Competition Commission, which would conduct a long and expensive investigation and seek remedies.  The merger could be abandoned if this happens.

Probably a reasonably satisfactory end of the line for GNER

December 15, 2006

Analysis of:Competition commences for operator of InterCity East Coast franchise | www.dft.gov.uk

UK Government announcement that GNER's passenger rail concession is to be terminated within 12 to 18 months.

No financial information is disclosed.  But the deal is probably relatively good news (in a set of bad circumstances) for GNER and its parent company Sea Containers.  They appear likely to escape from this ill-judged 10-year contract at modest cost, and without a big reputational risk as it is unlikely that services to passengers will be disrupted.

If anything, it seems probable that GNER/Sea Containers (if it still exists) will be able to maintain the high standards of customer service that it has become known for (at least in First Class), and to point in the future to the deterioration in standards that is likely to occur when another operator takes over.

UK energy transmission charges (NGG, ScottishPower, SSE): last chance for a compromise

September 28, 2006

Analysis of:Ofgem press notice: Transmission price control review September update (PDF) | www.ofgem.gov.uk

This consultation is the last chance to influence the regulator Ofgem's final proposals on a five-year price plan (April 2007 - March 2012) for energy transmission charges in Great Britain.

At first sight, it is bad news for the companies (LSE:NG. NYSE:NGG, LSE:SPW NYSE:SPI, and LSE:SSE):
• Ofgem is sticking to a low allowed return on capital (4.2% plus inflation and tax, compared to 4.8% for electricity distribution and 5.1% for water utilities).
• There is a worrying gap between Ofgem's and companies' assessments of caital expenditure requirements.

But the detailed proposals may be more generous than these headlines imply, and there is still a chance of further regulatory softening before the final proposals in early December 2006.

Pharamaceuticals parallel trade in Europe: small victory for GSK and Big Pharma

September 28, 2006

Analysis of:EU Commission must review GSK parallel trading ruling - EU court | www.forbes.com

The Court of First Instance of the European Union has quashed a decision of the European Commission prohibiting a system of dual pricing established by GSK in Spain with the aim of preventing parallel trade of medicines back to the UK.  Other companies (e.g. Pfizer) are involved in similar cases (but there might be significant differences).

This judgment seems like a victory for companies who object to parallel trade, which prevents them from exploiting the differences in willingness to pay for patented medicines between EU contries.

But the victory is arguably minor and temporary, as the case is remitted to the Commission for re-consideration.  The Commission has been slapped down for writing a poorly reasoned decision, but there is no proof that its conclusion was wrong.  The conflict between companies' anti-parallel-trade measures and the EU's single market objectives remains unresolved and there is little to suggest that the companies' view will prevail.

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