Keeping a loophole open for power play?

ARCANE rule changes by the UK Listing Authority aren't normally of much interest to anyone apart from investment bankers and lawyers, and CP 203 (chapter 7) doesn't sound promising at first sight either.

It is for the most part a tidying-up exercise, and the final date for consultation, 19 July, is likely to pass without incident.

But this innocuous document has the potential to cause huge embarrassment to the Government, depending when these rule changes are implemented. The date matters because it could clash with attempts by the new board of stricken nuclear generator British Energy to force through reconstruction proposals.

The company collapsed two years ago, it will be remembered, when the wholesale price of electricity fell below the price at which the nuclear generator could produce it. Since then, however, the price has recovered sharply and the market in power stations has become hot.

Venture capitalist Rutland this week bought Fifoots Point in Wales from receivers for a knockdown £40m. Centrica paid £142m for Killingholme in Lincolnshire last month while Scottish Power paid £317m for Damhead Creek in Kent. Last Tuesday's deadline for bids for the European assets of America's Edison International aroused huge interest.

This change in market conditions has restored the underlying profitability of British Energy and now makes the proposed financial reconstruction of the company almost Railtrack-like in its meanness to shareholders.

New long-term contracts signed by British Energy make it hugely profitable and cash-generative but shareholders will be left with just 2.5% of the company with warrants entitling them, on further payment of £29m, to an additional 5%.

Technically, shareholders could throw out the deal - but if they do chairman Adrian Montague, put into the company by the Treasury, says he will bulldoze it through by exploiting a loophole in the listing rules that allows him to delist the shares and thereby avoid the requirement for shareholder approval altogether.

This is where the FSA's tidying-up exercise comes in because it closes that loophole by bringing in a requirement for shareholders to agree to a delisting. That would give them the power to block the British Energy proposal and demand terms that better reflect current market conditions.

British Energy needs to get the deal cleared by the European Commission because of the State aid issues, and that will not happen until after the summer holidays.

FSA people have said unofficially that August or September would be a good time for the new rules but the most a spokesman will say for the record is 'by the end of the year'. Either way, the timetable gets tight.

Will British Energy and its Government backers be ready to put the company's proposals to shareholders and, if necessary, exploit the loophole before the FSA makes its rule change?

Might someone in Whitehall be tempted to lean on the FSA to delay closing the loophole until after British Energy has done its business? Most of all, should the company and its ministerial supporters resort to such shoddy practice, knowing that a rule change is imminent?

Whoever would have thought CP 203 would raise such intriguing issues?

Wide of the mark

IT is naive to believe that Stuart Rose, after a few weeks at Marks & Spencer, will on Monday be able to produce a blueprint that will solve the company's problems.

He may have some ideas but the challenge of M&S is bound up with its size and complexity, the number of markets in which it operates and the fact that its middle management has already been thoroughly disillusioned by waves of outsiders coming in armed with instant solutions.

His brief time at the helm may have opened his eyes to the possibilities for financial engineering and asset-stripping to return money to institutions, but not to tackle the fundamentals of the business.

It does a disservice to management generally to create the impression that complex problems are so easily solved. Indeed, this search for instant answers and easy solutions is in many ways the new British disease.

The board should know that and has been cavalier in dismissing the latest Philip Green offer in the belief Rose has got the golden key. He is after all the man they declined to employ six weeks ago, so they should at least have pretended to give the new offer more detailed consideration.

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