Revenge has no part in bid, says Mulcahy.
By Ben Laurance
GEOFF Mulcahy, the soft-spoken chief executive and chairman-elect of Kingfisher, insisted last night that in launching his 460 million bid for Dixons, that revenge was the last thing in mind.
' This is a straight commercial exercise, ' he said, ' We believe we can turn around this business.
The argument should not be confused by talk of revenge. '
But there is a certain piquancy in Kingfisher now trying to turn the tables on a company from whose clutches its escaped by a whisker only three years ago.
In 1986, Dixons was the darling of the City.
It was cashing in a spectacular consumer boom.
Kingfisher  or Woolworths as it was then called  was still being reshaped under the guidance of Mulcahy and his team, who had spearheaded a buy-out of the company from its US parent four years earlier.
Now, it is Kingfisher which has become a favourite  not because the people at the helm have great shopkeeping flair but because their cautious and unflamboyant management style has created a retailing empire of solid reliability.
The Mulcahy approach could hardly be more different from that of Stanley Kalms, the creator and chairman of the Dixons empire.
Kalms is an instinctive entrepreneur.
He joined his father's portrait photography business at the age of 16 just after the war and soon realised that selling cameras was more lucrative than taking pictures.
The business grew Topsy-like as Dixons stacked its shelves with electrical and photographic equipment from low-cost suppliers in the Far East.
Currys was taken over in 1984, two years before the unsuccessful 1.8billion bid for Woolworths.
Now, Dixons is suffering.
Profits, above 100million in 1987/88, are likely to fall to 45million in the year to next April.
The surplus will come from things like property development, financial services and the US electrical offshoot, Silo: the 350 Dixons and 600 Currys outlets are losing money.
Attempts to move Currys gradually out of the high street to larger edge-of-town and out-of-town stores and to tone down Dixons' garish image have yet to bear fruit.
Meanwhile, Kingfisher has prospered, embracing far more than the relics of the British end of Frank Winfield Woolworth's creation.
Woolworths opened its first British shop in Liverpool 80 years ago, thrived on its' nothing more than 6d ' formula until the second world war, lumbered through the the 60s and 70s and came into the embrace of Mulcahy's team with more than 1,000 outlets.
It has been cut back to 700 shops, each with just six departments.
Add in Comet, Superdrug and B&amp;Q, and that is Kingfisher, run with little of the flair which Dixons showed in its heyday but perfectly poised to withstand a downturn.
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Europe to drop Japan car curbs.
By Alan Hope in Brussels
QUOTAS which restrict imports of Japanese cars to Europe are to be dropped from the end of 1992, in return for greater access to the Japanese market for European carmakers, the EC Commission said yesterday.
The Commission also confirmed that there would be no repeat of the row, earlier this year, over the local content of Nissan cars built in Britain and exported to the rest of Europe.
' Cars produced in Europe are supposed to be European cars', Mr Frans Andriessen, the EC's External Relations Commissioner said.
Five countries currently maintain national quotas on imports of Japanese cars -France, Italy, Spain, Portugal and the UK.
According to the Commission, they should be progressively reduced as soon as possible  most likely from the start of 1991.
On January 1, 1993, quotas will disappear but Japanese exports will continue to be strictly monitored.
The Community will keep the option of introducing safeguard measures if imports produce too much of a threat to the European industry.
The decision on the Community's policy comes after months of debate in the 17-member Commission.
The Commission proposes that 1993 be the start of a transition period of indefinite duration, during which quotas will be lifted while imports are tightly monitored.
In any case, an open European market will make national quotas impossible to enforce.
The Japanese will be offered greater access to Europe, on condition that they open their domestic markets  not only for cars but for a whole range of industrial and service sectors  to European businessmen.
The Commission hopes that the threat of new restrictions on cars, this time on the Europe-wide level, will spur the Japanese to do more in this area than they have to date.
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Adjusting the Delors vision of a Social Charter to the needs of greater Europe Notebook.
By Edited by Alex Brummer
THE main focus of British angst at the Strasbourg Summit is likely to be the Social Charter.
But it is also plain that despite sterling's depreciation to a rate at which it might be reasonably competitive within the Exchange Rate Mechanism, Mrs Thatcher's team are no more ready to sign on the dotted line than they were in Madrid this summer.
The Strasbourg smokescreen will be different.
The Whitehall-propagated view is that the changes in Eastern Europe are so momentous they render European Monetary Union, a common fiscal policy and the charter obsolete.
Instead of focusing on the narrow agenda of Delors the new Europe should be more forward looking.
It should examine the relationship between Eastern and Western Europe and issues of global importance in Europe  such as pollution  rather than pussyfooting with the Social Charter.
As far as the charter is concerned they may be on the right track (if for the wrong reasons).
Although the aims of the charter are laudable, ensuring adequate social security, the right of employees to join a union and the right to strike, among other things, they could be unworkable if one assumes that some closer links between the emerging countries of the Eastern bloc and the West  including German reunification.
One obvious problem, pointed out in the most recent issue of the National Institute Economic Review, is the issue of relative labour costs.
A charter which encouraged the poorer countries to move towards the best practice in the richer nations would clearly affect competitiveness in the less well-off states.
If this already were true in traditional free market economies, imagine the gap to be closed with countries emerging from the iron hand of Stalinist control.
It would be clearly better for the UK, given its dismal failure on the inflation front, to be exposed to the discipline of the ERM irrespective of developments further to the East.
But when it comes to the Social Charter there may well be a case for slowing the grandiose Delors ideas.
Stateside bolt-hole?.
TIMING was not on the side of Thames Television yesterday as it unveiled the 57million purchase of American TV production house Reeves.
Fresh in the market's mind was the shambles which has engulfed TVS following its expensive foray into the American television market.
The purchase of MTM is likely to wipe out the second-half profits of TVS this year.
Thames is also choosing to launch the transatlantic venture  its first major takeover  as all eyes are focused on the British market where the Government will today reveal the details of its new broadcasting legislation including proposals to force ITV contractors to compete in an auction for the renewal of their franchises.
Shares in Thames slipped on fears that the company may not be able to shake off the jinx which has dogged so many American acquisitions by British foragers.
But chairman Sir Ian Trethowan described it as a ' cost effective ' way into the US market which will add the adolescent delights of sitcoms such as' Gim me a Break ' to Thames's programme library.
The company is also hoping to exploit the link to pump its own programmes out to the thousands of mainstream and cable stations in America.
Plunging into the midst of a soft US market may not look clever in the short term, particularly since Thames's own revenue is starting to feel the effects of the slowdown in advertising spending.
But America is still the largest television market and Thames now has a foothold.
If disaster strikes and the company is outbid by one of the many expected rivals for its lucrative London franchise  the largest in Britain  Reeves could provide a bolt-hole.
Law's delay.
THERE is a growing belief in Parliament and among the hapless investors of Barlow Clowes that the Ombudsman's report into the Department of Trade and Industry's role in the affair will, in part, be suppressed on sub judice grounds.
The legal fall-out of the 190million scandal and the criminal cases which have resulted from it mean that, on grounds of fairness alone, it would not be right to pre-judge the trials due to start next year.
Sir Anthony Barrowclough's report could, indeed, be viewed in those terms and holding back some of the more sensitive parts would be consistent with the Serious Fraud Office's efforts to restrain some of the most recent civil court hearings on the affair.
However, the SFO's handling of its investigations has hardly been consistent and it already has set a precedent for the Barrowclough report to be published in full.
The best case in point is the publication of the DTI report into the Blue Arrow affair which came before the arrest and subsequent charging of the 11 defendants.
It is no wonder, therefore, that many people believe the current delay in publishing the Barrowclough investigation is for reasons of political expediency rather than legalistic necessity.
The crux of the matter is whether compensation should be paid to the investors: if Sir Anthony has thus decided, then the Government should duly oblige.
In these days of financial sweeteners, surely there are more votes in rescuing 18,000, mainly elderly, investors from dire financial plight just as there is ensuring that the UK's last home-grown car manufacturer remains in British hands?
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BNFL ' to revive ' nuclear power.
By Patrick Donovan Industrial Correspondent
THE development of Britain's atomic power programme could be resurrected under plans being considered by British Nuclear Fuels which is looking at the feasibility of establishing itself as a major player in the post-privatisation electricity market.
Although the Government's recent decision to pull all atomic reactors from the sell-off programme and scrap the construction of three Pressurised Water Reactors was expected to freeze Britain's civil nuclear programme for at least five years, BNFL yesterday disclosed that it was looking at ways of diversifying into generating power.
Declaring that the Department of Energy's about-turn will result in ' merely a temporary interruption ' to atomic development, chairman Mr Christopher Harding admitted that the nuclear industry's image has been damaged by fears about nuclear waste.
Despite the wealth of evidence that nuclear power can never under-price fossil fuel-generated electricity, BNFL is looking at ways of competing for supply in the open market.
Proposals involve the possible construction of up to four PWRs on existing BNFL sites at Calder Hall at Sellafield and Chapelcross in Scotland.
The new plant would have capacity of between 600 and 2,400 megawatts of power.
The company is also planning to expand the life of the existing Magnox reactors by another 10 years.
Development costs could be reduced by expanding these existing nuclear sites which are currently used primarily to produce fuel for military purposes.
Construction could be caried out as a joint venture with the new state-owned company set up to operate all existing nuclear plant.
Any BNFL output would have to compete on commercial grounds.
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Official figures are hard to credit as families fail to claim benefit.
By Mike George
ASTAGGERING number of the hard-up are failing to claim benefit under the Family Credit Scheme  despite a recent change in government calculations.
Families struggling on low incomes can get help from the scheme provided at least one adult is working at least 24 hours a week.
When it was introduced in place of the old family income supplement scheme last year, just 38 per cent of those entitled claimed family credit.
The government subsequently altered its estimate of those able to claim and came up with a 50 per cent take-up rate.
And now Tony Newton's social security department is hoping a recent 7 million advertising campaign will boost that to 60 per cent.
Family credit is a means tested benefit paid on top of wages, or earnings from self employment.
It is almost always paid to a woman.
To qualify you must be responsible for one or more children aged under 16, or under 19 if they are still in full-time non-advanced education.
Your savings must total less than 6,000 though 1 of ' notional income ' is added in when working out your income level for every 250 (or part thereof) of savings over 3,000.
Any children's savings are ignored, unless one of them has over 3,000, in which case you can't get family credit for that child.
The scheme is based on a so-called ' applicable amount ', currently 54.80 a week.
Anybody whose income is less than this will get full family credit.
The payments are based on set amounts: 33.60 for a lone parent or a couple: 23.30 for each child aged 18: 16.35 for each child aged 16 or 17: 12.90 for each child aged 11 to 15, and 7.30 for each one up to 10 years of age.
If your income is above 54.80 a week, 70 per cent of the additional amount is cut from the set payments.
Sheila is a lone parent with two children, aged 13 and 15.
She works part-time, averaging 28 hours a week.
After paying tax and national insurance she gets 75 a week take home pay.
This is 20.20 above the 54.80 applicable amount, and 70 per cent of this is 14.14.
Her set amounts are 33.60 as a lone parent, plus 25.80 for the children.
That totals 59.40, but 14.14 is deducted, leaving her total family credit at 45.26 a week.
Child benefit payments, one parent benefit, housing benefit, income support and mobility and attendance allowances are all ignored as incomes for the purposes of family credit.
So Sheila's actual income is 75 from earnings, plus 14.50 child benefit (7.25 each), 5.20 one parent benefit and 45.26 from Family Credit.
Earnings are always taken net of tax and national insurance.
For those who are weekly paid, normal earnings are estimated by looking at the last five weeks pay, or the last two months for the monthly paid.
For the self-employed it is either the last 26 weeks or the last year's set of accounts which are used.
Self-employed child minders only have one third of their net earnings taken into account as income, the rest is ignored.
Family credit is also available on unemployment benefit, although this is counted as income.
Pam and Errol have two children, aged 13 and 16.
Errol is on unemployment benefit of 34.70 a week, while Pam is bringing home 75 a week.
This adds up to 109.70, some 54.90 above the applicable amount, and 70 per cent of that is 38.43.
Their set amount for family credit is 62.85, from which 38.43 is deducted, leaving a final payment of 24.42.
With child benefit included their income has been increased from 124.20 to 148.62 a week.
If one partner has been getting statutory sick or maternity pay for a continuous period of 13 weeks or more, this is counted as income.
Otherwise these payments are ignored.
Family credit lasts for 26 weeks at a time, then you will have to reapply.
However, it will end sooner if someone else claims income support or family credit in respect of a child who was included in your family credit award.
If you feel that your award is wrong in some way you can ask for the decision to be reviewed or make an appeal  details of how to do this are available from social security benefit offices.
If you're getting housing benefit this will be affected if you claim a family credit award, as your income will increase.
In some cases this may make the prospect of an award less attractive.
Some local authorities also assume you're getting family credit, even if you haven't claimed it, and so reduce your housing benefit.
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Interest rates hit Greene King.
By James Morrow
GREENE KING, the East Anglian brewers in which Elders IXL has a 13 per cent stake, announced flat half-time profits yesterday as interest charges began to bite.
Trading profits for the six months increased from 6.9million to 8.36million, but profit from property sell-offs fell and interest charges jumped from 32,000 to 461,000, leaving pre-tax profits just 274,000 ahead at 9.4million.
Greene King IPA bitter and Harp Lager have continued to increase substantial market share.
Interim dividend is up from 2.6p to 2.9p.
PAGE
Jack Schofield on a company feeling more than the pinch of a weak US economy IBM in a downsizing squeeze.
IBM, once Wall Street's darling, is becoming its whipping boy.
Its shares slumped from around $170 before the October 1987 crash and instead of recovering with the Index have just touched a seven-year low at $96.
This week IBM unveiled plans to shed another 10,000 employees  about 4.5 per cent of its US workforce  saving $1billion a year and it will buy back another $4billion-worth of its own shares.
Unfortunately for IBM, its problems are not simply that it has too many staff.
Its problems are not even simple.
They include threats to its hardware, its software and its networking system, as well as the weakness of the US economy, which is affecting many other suppliers.
Although the US economy is not in recession, it has visibly slowed.
Profits have fallen for three consecutive quarters and capital spending has fallen in response.
Spending on information technology has also declined, demonstrating that the computer industry is no longer recession-proof.
Large suppliers such as IBM, DEC and Unisys have undoubtedly suffered.
But even in a bad market some firms do better than others.
Hewlett-Packard, for example, managed to grow its annual sales 21 per cent to $12billion, and Apple managed a 30 per cent increase to $5billion.
And Compaq, competing directly against IBM in desktop PCs, increased sales by 36 per cent and profits by 51 per cent, in its latest quarter.
This suggests IBM's problems may be more fundamental.
In fact, today's three major computer industry trends  towards' downsizing, ' portable operating systems and open networks  are all working against IBM.
' Downsizing ' simply means that firms are tending to buy smaller computers to do jobs which used to require big ones, and big computers are where IBM makes most of its money.
Downsizing has been made possible by the growing power of the microprocessor and the new ' economies of small '.
Given that microcomputer power costs a tenth of the price of minicomputer power, while minicomputer power costs a tenth of the price of mainframe power, a small shift in this direction can make a dramatic difference to revenues.
Portable operating systems, such as Unix, are also a threat to IBM and other companies which once prospered on proprietary ones, such as Wang and Data General.
Traditionally, computer manufacturers have used proprietary software to ' lock in ' users, who would then find it impossible or prohibitively expensive, to move their applications to other manufacturers' machines  or even, in IBM's case, different machines from the same manufacturer.
This strategy is being made obsolete by Unix, an ' open ' operating system that runs on hundreds of different computers from hundreds of different manufacturers, from micros and minis through mainframes to supercomputers.
Moving applications becomes relatively simple, and turns hardware into a commodity.
Manufacturers can no longer charge according to some idea of ' value ' but must compete on price and performance.
This can have a dramatic effect on margins.
Open networking provides the means for computers from different vendors to be connected together using OSI (open systems interconnection) standards.
OSI enables all the different manufacturers to work to a common set of standards.
Again this works against IBM, which is irrevocably committed to its own proprietary networking system, SNA.
These changes are not just a matter of following technological devlopments, but reflect the way businesses are changing.
Major firms like General Motors and Heinz no longer see themselves as machines needing only periodic maintenance to run forever.
They are no longer isolated and no longer see computers as providing mainly internal services such as payroll and stock control.
Instead, large corporations are becoming more like living organisms, continually changing and adapting.
They must interact with the outside world, and networks of computers are the way to do it.
Examples include electronic data interchange (EDI)  ordering stocks and materials and paying bills electronically, instead of using paper  factory automation and JIT (just-in-time) production systems.
IBM wants to compete in all these markets and is apparently enthusiastic about AIX (its version of Unix) and OSI.
But open systems are backed by governments and controlled by committees, which means IBM can not dominate or control them.
Also by competing it risks cannibalising its own best profit sources: IBM selling an AS/400 mini is a triumph if the buyer would otherwise have chosen a DEC VAX, but a financial disaster for IBM if it replaces an IBM mainframe.
Although one IBM manager recently got widespread publicity for pointing out that PCs were overtaking mainframes as IBM's largest source of revenues, this is misleading.
IBM's revenues from mainframe processors in calendar 1988 may have been only about $12billion, but sales of peripherals ($11billion), software ($8billion) and maintenance ($7billion) should be added to this.
Perhaps two-thirds of IBM's income and an estimated 75 per cent of profits are still tied up in this threatened area.
There's no way round that.
As one IBMer said: ' You can't build a $60billion corporation out of selling $400 networking cards. '
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Massive surge in traded options contracts before 480 million offer attracts suspicion Kingfisher's bid for Dixons sparks insider dealing investigation.
By Ben Laurance
EVIDENCE of widespread insider dealing ahead of yesterday's 480million bid for Dixons was being investigated by Stock Exchange officials last night.
Records show a huge surge in deals on the high-risk, high-return traded options market 24 hours before Kingfisher, the Woolworths-to-B&amp;Q retailing empire unveiled its takeover offer for the troubled Dixons group.
Last week saw an average 100 traded options contracts traded each day.
Each contract covers the right to buy or sell 1,000 Dixons shares at a given price in the future.
On Monday, activity was similarly subdued: 163 contracts were recorded.
But on Tuesday, Exchange records show that activity on the traded options market leapt to 2,601 contracts, covering 2.6 million Dixons shares.
The price of an option to buy a share in Dixons for 100p next March doubled between Tuesday night and yesterday afternoon when details of the Kingfisher bid were unveiled.
Speculators who bought the options before the bid and sold 24 hours later showed a 100 per cent profit.
There is no suggestion that people directly involved with Kingfisher profited from knowing that a bid was imminent.
But company executives accept that there must have been a leak as they put together a financing package to back their bid for Dixons.
After the price of Dixons shares staged a strong rise on Tuesday, Kingfisher felt obliged to broadcast a statement to the Stock Exchange first thing yesterday morning saying a bid was in the offing.
Kingfisher says that even if there had been no leak, the bid would probably have been launched this week.
Details of the takeover terms were announced yesterday afternoon.
Sources within the Stock Exchange confirmed yesterday that the sudden pre-bid surge in the traded options market is being examined by an insider dealing investigation team which looks at suspicious activity ahead of the release of price-sensitive information.
Kingfisher's bid comes little more than three years after it fought off a 1.8billion takeover attempt by Dixons.
The Kingfisher group, whose name was changed from Woolworths earlier this year, includes about 720 high street shops under the Woolworths name, electrical retailer Comet with 307 outlets, Britain's leading DIY group, B&amp;Q, and Superdrug, the high street chain which last week announced that it is buying Medicare from the Gateway supermarket chain's new owners Isosceles.
The Dixons chairman, Mr Stanley Kalms, is expected to issue a formal rejection of the Kingfisher offer this morning.
Kingfisher risks having its bid held up by a Monopolies Commission investigation because of the grip it would have on the electrical retailing market if it controlled Dixons and Currys as well as Comet.
The company insists that a takeover would give it only 22 per cent of the total market for white and brown goods  everything from washing machines and fridges to video recorders and hi-fi  and small electrical appliances.
This would be below the level which normally triggers a monopolies probe.
However, figures from market researchers Verdict suggest that in 1988, Comet had 7.6 per cent of the market, Lasky's  since bought by Kingfisher  1.2 per cent and Dixons almost 18 per cent.
That would mean a takeover would give Kingfisher over 26 per cent.
Dixons has been one of the first retail chains to suffer from the slowing of retail demand.
It has also been hit by the lack of new products to draw shoppers into its stores and the failure of satellite TV to take off as hoped.
Profits fell from 103million in 1987/88 to 78million last year and are expected to fall to 45million in the current 12 months.
Kingfisher is offering 120p cash for each Dixons share, but analysts think that much more will be needed to win control.
Dixons shares stood at 141p last night.
Kingfisher says it would speed up the closure of small Currys outlets and the shift to larger out-of-town sites.
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British Land's shares soar on split-up plans.
By Larry Elliott Economics Correspondent
SHARES in John Ritblat's British Land soared yesterday after the property group announced it was splitting the company in two in an attempt to provide a better deal for shareholders.
A quarter of the group's assets worth 339million will be sold to a new listed company, New British Land, which will operate in the manner of the old group and look to expand its portfolio of properties.
The remaining chunk of British Land's existing portfolio  including all its blue-chip investments such as Plantation House in the City of London  will be sold off.
Mr Ritblat said yesterday that he was prepared to sell the properties off piecemeal and had put no timescale on the disposal of assets, but that it was conceivable that a big foreign investor might move in to buy the portfolio in its entirety.
However, he stressed that the offer would have to be considerably more than the break-up value of the portfolio.
Along with the rest of the property sector, British Land's shares have been trading at a considerable discount to its assets per share, and yesterday's move is an attempt to close the 40 per cent gap which built up as institutions took a dimmer view of the market.
Government changes to the tax system in recent years had allowed the company to come up with a solution which would make shares which had been trading at less than 3 last month to 5, Mr Ritblat said.
Last night British Land shares closed at 403p, up 46p on the 357p they were trading at when suspended on Tuesday.
As part of the deal, British Land's existing shareholders will receive 13 shares in the new company for every 40 they own.
There will also be a tender offer to repurchase 10 per cent of British Land's shares at 420p, together with a voucher for the associated tax credit worth 89p.
Mr Ritblat said he and his fellow directors were showing their commitment to New British Land by investing almost 12million in cash into the new company, which he said would concentrate on the UK but also look for overseas opportunities provided by the creation of the Single European market.
Analysts said they expected the group to have no big problems persuading shareholders to approve the restructuring plans at an extraordinary general meeting on December 21.
' The scheme is beautifully tax-efficient, ' one analyst said.
But the success of the restructuring depended on the speed and price of asset disposals.
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Fall in car sales.
UK car sales fell by 4.07 per cent to 143,323 last month compared with November 1988, according to the Society of Motor Manufacturers and Traders, with Vauxhall's Cavalier taking the lead from Ford.
Johnson chief quits.
Eugene Anderson resigned as chief executive of platinum metals producer Johnson Matthey on the eve of the company's half year results.
158m deal.
CMB Packaging, the merged Metal Box Packaging and Carnaud group, is selling its tinplate division to France's state-owned Usinor-Sacilor group for 158million.
Happy Isosceles.
Underwriters of the 1.36 billion loans for Gateway owners Isosceles said they were comfortable with the syndication after 60 per cent of the debt was taken up.
Isosceles plans no further meetings with its bankers who say they are happy with its performance.
Pearson's new MD.
Frank Barlow, chief executive of the Financial Times, was appointed Pearson's new managing director.
Maxwell move.
Publishing tycoon, Robert Maxwell, and his family plan to buy out the shares they do not own in Pergamon AGB.
Wall Street down.
The Dow fell 4.91 points to close at 2,736.77.
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Perelman eyes stake in Shearson.
By Mary Brasier in New York
RONALD PERELMAN, the former corporate raider who heads the Revlon cosmetics empire, is being tipped to take a significant stake in Shearson Lehman, Wall Street's second largest broking firm.
Mr Perelman has been talking to Shearson and its parent, American Express, about buying a 20 per cent shareholding in the broking business.
Mr Perelman and Shearson will not comment but a share sale to the Revlon chairman could increase the upheaval within Shearson.
' Normally when people come in from the outside into the securities business they leave management alone.
If Shearson hope for a passive investor, it is not in Perelman's make up, ' says Perrin Long, a securities analyst at Lipper Analytical.
Shearson has reshuffled senior management and it plans to cut its US workforce in an attempt to restore its finances.
It also faces increased interest costs on its debt unless it improves its balance sheet in time to stave off a threatened downgrading of its debt by the Moody's credit rating agency.
Last week the firm said it hoped to agree a sale of part of the 61 per cent stake owned by American Express as part of a deal to inject new equity into the firm.
Mr Perelman previously attempted to buy a stake in Salomon Brothers, which rejected his approach.
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Saatchi plunges into red.
By Roger Cowe
SAATCHI and Saatchi, the world's largest advertising agency group, has plunged into the red after providing for 78million of reorganisation and redundancy cost.
The company has slashed the dividend, which is being paid out of reserves.
The company admitted it had been ' a tough year ' but said the second half had seen a ' substantial recovery ' in performance of the main communications businesses as costs were controlled.
Central staff numbers have been cut by a quarter, including the closure of the office in Washington DC.
After those cuts, trading profits of the communications division were more than double those in the first half year and marginally ahead of the second half of last year as business held up.
But profits continued to fall in the troubled consultancy division which is up for sale.
And a 27million swing in interest costs left trading profits before tax virtually halved at 61million.
After tax, reorganisation costs and preference dividends that turned into a loss of 58million, but despite the loss the company is paying a minimal final dividend.
' After careful thought it was decided that a final dividend of 1.6p be recommended, ' the board stated, ' making a dividend of 9p for the year.
We believe this level to be sustainable. '
The group is negotiating the sale of its remaining consultancy businesses and says this will leave it with a strong and focused base in advertising and marketing services.
Charles and Maurice Saatchi have stepped back from the top executive roles and have recruited Frenchman Robert Louis-Dreyfus as chief executive.
Despite the results and the dividend being lower than expected, Saatchi shares rose 15p yesterday on hopes of a takeover bid.
Outlook, page 13 PAGE
Saatchi crumbles as Thatcher's star wanes Outlook.
By Roger Cowe
IT IS grimly appropriate that as Mrs Thatcher's star wanes the fortunes of the advertising agency which shot her to stardom should also crumble.
It remains to be seen whether either can bounce back, and whether Saatchi and Saatchi will soon be fighting off a rather more vigorous takeover bid than Mrs Thatcher faced this week.
But for the moment there is precious little good news from the brothers who built the world's largest advertising agency from a standing start 19 years ago, in the process building Mrs Thatcher into a formidable vote-winner and doing themselves no end of good thereby.
The cracks were already beginning to show at the moment of their greatest triumph.
Even as Mrs Thatcher stood triumphant for the third time on the stairs at Central Office the applauding apparatchiks were already honing the knives for the Saatchi team which was blamed for various mid-campaign woes.
And as the Saatchi shares peaked ahead of the 1987 stock market crash the seeds of its financial decline had already been sown.
The shoots were pushing their heads above the ground even though the group was still able to claim record profits as late as January of this year.
In his statement with the annual report chairman Maurice Saatchi described the group as' the most successful company of the decade. '
Two months later the truth was out.
At the annual meeting in March Mr Saatchi warned that profits would fall this year (although nobody expected they would fall nearly as much as they have done) and there would be disposals.
Business was bad in the main ' communications' division while the consultancy operation was in big trouble.
Costs everywhere were out of control.
Three years ago the agency was clearly struggling for profitability, coming well down the annual leagaue table for the industry prepared by accountants Spicer and Oppenheim.
The illusion of success was maintained only because the group's high share price enabled it to buy companies on the cheap and so keep pushing up total profits and earnings per share.
Now the illusion is well and truly shattered and the only reason the share price has not plunged much further than it has is the hope that some brave soul will put the group out of its misery with a takeover.
(In fact the share price rose 15p yesterday on just such hopes despite the fact that the results were much worse than expected).
The company was putting a brave face on it yesterday, as can only be expected.
The second half represented a substantial recovery, the company said.
Trading profits in the communications division were more than double the figure for the first half year thanks to the cost control programme.
New executives had been appointed.
Four consulting companies had been sold.
But in fact the worse may not yet be over.
The doubling of profits in Communications brings the level back only to what it was in the second half of last year.
Consultancy profits were down again from the poor first half level.
Interest costs ate a great hole in what profits were left and will continue at a high level unless the group can raise substantial sums from asset sales.
There is still no sign of a buyer for the main consultancy business, Hay, and uncertainty over whether an agreement is imminent on Gartner Group.
And executives are still leaving even before new chief executive Robert Louis-Dreyfus and his finance director have joined the group.
Their task is unenviable.
The whole rationale of a global advertising business is under question.
But quite apart from that the group faces difficult times.
Costs may now be under control, after 750 redundancies and the Washington office closed along with cuts in New York and London.
But now the pressure will shift to revenues as the advertising industry environment sours.
So far Saatchi and Saatchi has maintained its ability to win new business and remarkably has clung on to its status among advertisers, only recently being voted the best all-round agency.
But advertising is a mercurial business.
Much depends on the intangibles which produce whatever it is in the ether that allows creative sparks to ignite.
In the past those intangibles have been fed by the group's apparent invincibility.
But who knows what debilitating effect sackings and losses will have on those vital fluids.
Perhaps we will never know.
Foreign bodies have already appeared on the Saatchi share register and despite its problems the group would clearly be a juicy prize for someone such as the fast-expanding French.
It would be even more grimly appropriate for Saatchi to be swallowed by the French just as Mrs Thatcher lost her struggle to prevent the pound being swallowed into the European Monetary System.
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Tiphook confident.
Container group Tiphook yesterday said it was still confident of winning its joint 643million bid for Sea Containers even though the battle has swung towards James Sherwood's ferries-to-trailers combine.
The offer from the Anglo-Swedish consortium formed by Tiphook and Stena AB is the subject of an appeal in the Bermudan courts which is aimed at overturning an earlier ruling allowing SeaCo to proceed with its' poison pill ' defence.
Tiphook, which yesterday unveiled a 124 per cent increase in half year profits to 10million, hopes the court will block SeaCo's purchases of its own shares.
Alternatively, it may be able to muster enough support from SeaCo shareholders to halt the current disposal of assets by Mr Sherwood for its bid with Stena to be fully considered.
The cost of the bid to Tiphook is put at 2million, which it says will have only a minor impact on full year results.
Increased demand for its road, rail and sea container fleets during the first half helped boost the latest figures.
This flowed through to earnings per share, up a half at 19.6p and shareholders receive a 25 per cent increase in the interim dividend to 2.7p.
The shares rose 9p to 443p.
Salvesen boost.
Christian Salvesen, the food process and distribution, generator hire and brick making group, raised pre-tax profits by almost 21 per cent to 32.6million in the six months to September.
Aggreko generator hire, Salvesen's world market leader which provides power for customers from pop concerts to the oil industry, contributed strongly to a 37 per cent growth in trading profits in the industrial services division.
Oil slicks in Alaska and elsewhere helped Vikoma, the group's environmental cleaning equipment manufacturer, which specialises in separating oil from water, and although Salvesen brick, is suffering in the second half from a 30 to 40 per cent cut in demand as housebuilding nosedives, the first half was prosperous and full year trading profit should be on a level with 1988, says finance director Brian Fidler.
Almost a third of group profits are earned overseas, interest and tax charges are down on last year and gearing stands at 13 per cent.
Capital spending of 43 million should reach a total of 87 million for the full year.
The shares rose 10p to 170p.
Avon treads warily.
Shares in Avon Rubber have fallen sharply this year as a result of the weak demand for winter tyres and rights issue call to finance the move into US motor components.
The sale of most of the lossmaking tyre distribution business to Sumitomo, now also a minority shareholder in the only British-controlled tyremaker's plant, gives the board confidence in some improvement this year, despite a poor immediate outlook for the motor producers.
Pre-tax profit fell 4.1million to 12.2 million in the year to September 30, in line with the severely-reduced expecations after the Cadillac Rubber acquisition and rights issue in July.
Turnover was held at 228.6million, an rise of about 2million, by the earlier contribution from tyre distribution and the US replacement.
The final dividend goes up to 11.5p, making 16.5p, against 14p for the year.
Earnings crashed by a third to 41p.
There was an extraordinary gain of 13.4 million, covering the Motorway Tyres disposal and more rationalisation costs.
In short...
WHESSOE saw pre-tax profit rise to 4.78 million, from 3.55 million, on sales of 58 million down from 100 million.
Earnings were level at 17.5p a share.
Dividends total 5p, up a penny, with a 3.75p final.
BTP's enlarged specialist chemicals activities boosted turnover to 60.1million, from 44.8million, in the September half and profit rose to 9.6 million from 5.6 million, including an exceptional 3.1 million, from the Rizzi engineering sale in Italy.
Earnings without such gains were 1.9p higher at 6.8p a share.
The interim dividend is 2.75p, a rise of 10 per cent.
NORCROS, the property, building materials and printing group, saw profits crash from 29million to 18.3million.
However, the City had been expecting bad figures and the shares rose 15p to 239p.
HARDANGER, the retail property developer, posted pre-tax profits up 1.3million to 8.37million.
The final dividend is 26.5p, making a total of 37.5p, against 30p.
CRYSTALATE, the electronics product group, experienced a ' serious disappointment ' in the second half and hence profits fell from 5.6million to 2.9million in the year to September.
The markets.
Kingfisher's 461million bid for Dixon's led to a resurgence of speculative activity yesterday.
Dixons' shares jumped to 153p in early trading but ended the day at 141p, a 22p rise.
Other recently depressed stores, and companies with businesses similar to Dixons, rose in sympathy.
Gus A were particularly prominent at 1118p, up 28p ahead of today's interim figures.
Properties continued to shine as British Land produced a complicated scheme to release the value of its property portfolio.
British Land closed at 405p, a net gain of 48p.
Hammerson shot up 45p to 855p in sympathy.
Tokyo: Nikkei index: 37,654.29 (37,494.17).
Hong Kong: Hang Seng index: 2,756.39 (2,764.44).
Frankfurt: FAZ index: 695.74 (684.01).
Paris: CAC index: 542.6 (543.8).
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Chrysler to sell its $1bn technology arm.
By Mary Brasier in New York
US car maker Chrysler, in another move to reinforce its defences against recession, is to sell off its $1billion technology arm to concentrate resources on its core business.
Chairman Lee Iacocca yesterday said the proposed sell-off was part of Chrysler's plan to become the world's lowest-cost and highest-quality car manufacturer.
He promised to step up competition against the company's Japanese rivals.
Chrysler has already suspended production at one of its main assembly plants and cut back on managerial staff.
It has announced plans to cut $1billion from its budget next year to cope with a slump in car sales.
The decision to put the technology division up for sale marks an about-turn for Chrysler which has spent more than $1billion in the last four years on its policy of diversifying out of cars into related areas.
The technology businesses built up since 1985 include Gulfstream Aerospace, known for producing corporate jets.
Chrysler's retreat is the latest retrenchment among the US Big Three car makers.
Allen Paulson, who runs Gulfstream, has resigned from the Chrysler board to try to launch a buy-out of the technology business.
Ronald Perelman, the former corporate raider who heads the Revlon cosmetics empire, is being tipped to take a significant stake in Shearson Lehman, Wall Street's second largest broking firm.
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More than 600 claimants die awaiting compensation Barlow Clowes' death toll rises.
By Daniel John
MORE than 600 of the original 18,000 investors caught up in the collapse of the Barlow Clowes investment empire have died during the 18 month-long battle to secure compensation, it was revealed yesterday.
The death toll has worked out at the equivalent of seven a week since the two companies responsible for investing 190million in government securities went into liquidation last June.
Many who invested in UK-based Barlow Clowes Gilt Managers and its Gibraltar sister operation, Barlow Clowes International, were elderly people whose plight has been made worse by the loss of their savings.
The latest number of deaths were released yesterday as the Barlow Clowes Investors Group (BCIG) sought to secure the release of the Parliamentary Ombudsman's report into the Department of Trade and Industry's role in the affair.
The draft written by Sir Anthony Barrowclough, the Ombudsman, is currently in the hands of the DTI for factual checking.
Investors have been expecting its publication for the last two weeks but are fearful it will be kept back for the week when Parliament goes into the Christmas recess.
That will prevent MPs scrutinising the report in detail and from questioning Trade Secretary Nicholas Ridley about the DTI's role in allowing Barlow Clowes to operate over the years leading up to its collapse.
There are also indications that the current criminal investigation into Barlow Clowes may prevent the most sensitive parts from being released.
BCIG representatives, including chairman John Dyer, yesterday lobbied key MPs in an effort to secure the report's earliest release.
An early day motion has also been put down in the House of Commons supporting their case.
A spokeswoman for the Ombudsman's office said the draft report was still in the hands of the DTI and that publication could not take place until it had been returned.
Labour's City spokeswoman Dr Marjorie Mowlam yesterday claimed the delay was part of a Government attempt to avoid further embarrassment over the affair.
The possibility that the report would not appear before Christmas would mean another miserable time for investors.
' How many more have to die before the report is published and they receive compensation, ' she said.
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New rules mean a set-back for army of casual workers.
By Linda Lennard
Unemployment benefit.
NEW rules to be introduced from tomorrow will hit many part-time workers receiving unemployment benefit.
Those who earn 43 a week or more will lose benefit for the whole of that week  even if they work only part of it and are unemployed for the remaining days.
Only people who earn 12 or less in any week will escape having their entitlement affected at all.
Anybody who earns between 12 and 43 in a given week may still be able to qualify for unemployment benefit on the days they are not working.
However, they will have to satisfy unemployment benefit officers that part-time work is not their usual pattern, and they are just doing it while looking for full-time employment.
In general, it has been accepted that people can take on part-time work in this way if it has not been their usual employment pattern.
But adjudication officers may eventually claim that part-time employment is your normal pattern, and that you should not be entitled to benefit on the days you don't work because you would not normally expect to be working anyway.
This so-called ' full extent normal rule ' has come under considerable criticism from the Court of Appeal downwards.
The new rules coming in tomorrow effectively mean the end of the full extent normal rule for people earning 12 or less in a week.
The government says the changes are interim measures and it intends to reconsider the whole question of the treatment of earnings received by people on unemployment benefit.
If you do any part-time work while on unemployment benefit and your earnings do not affect your benefit entitlement, you will still have to meet the rest of the conditions for this benefit on the remaining days.
These include a new stringent ' actively seeking work ' test which was introduced this October, as well as showing that you are available for work the rest of the week.
As well as earnings from part-time work, other income can affect your entitlement to unemployment benefit.
If you are aged 55 or over and have a personal or occupational pension which is more than 35 per week, the rest will be deducted from your benefit.
Money from a redundancy payment should not affect your right to this benefit.
Also note that if your partner earns more than 21.40 the adult dependants increase will not be payable for her or him.
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Water shares' underpriced '.
By Patrick Donovan Industrial Correspondent
MR MICHAEL Howard, the Water Minister, yesterday effectively admitted that water shares have been underpriced as he formally closed the deadline for application amid City predictions that the issue will open at a premium of up to 30 per cent.
As he waited to pose for photographers drinking a glass of water in a City bank, Mr Howard said the Government's calculations had been overtaken by the surge in the stock market.
Ministers however were not at fault because ' nobody could tell that the stock market would go up 150 points since we priced the shares.
I don't feel any difficulty about that. '
As flotation advisers suggested that as many as two million people could have applied for shares after a last-minute surge of applications, he added that the issue would be a big step towards the Government's goal of increasing the level of share-ownership.
Meanwhile Labour's water spokeswoman, Ms Ann Taylor, yesterday asked the House of Commons Public Accounts Committee to investigate ' the loss suffered by taxpayers as a result of the privatisation of water. '
She said: ' Overall the loss to the taxpayer due to the write off of debt and injection of cash is 1.291billion.
' The whole of the Government's political campaign to privatise water has been massively subsidised by taxpayers.
Throughout the year we have all had to pay huge amounts for advertising and for fees to PR firms and City advisers.
This has added insult to injury of a privatisation carried out against the wishes of the public.
' The industry has been massively undersold.
The price the Government has put on the water industry is a small fraction of the values of the assets shown in the prospectus. '
The 500,000 acres of land held by the water companies would be prey to ' massive exploitation. '
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