European Comment: New armada sets sail for UK

Santander’s takeover of Abbey National seems to have given other Spanish groups big ideas in the UK. Having been outmanoeuvred by the French in Italy, rival BBVA is now considering bidding for Lloyds TSB.

But Wednesday’s disclosure by Grupo Ferrovial that it was studying a cash offer with allies for British airport operator BAA adds fresh firepower to the armada of Spanish companies setting sail for UK shores.

If a bid does go ahead and is successful, Spain’s largest construction company would become a dominant force in the business of owning and managing airports.

That is if competition regulators allow it to add BAA’s extensive portfolio to its already flourishing airports and airport handling activities around the globe.

After all, ever since BAA was privatised, critics have been clamouring to split it up so as to break its hold on London’s three big airports: Heathrow, the world’s busiest international airport, Gatwick and Stansted.

Apart from the London airports, the combination would control six other UK airports plus Budapest, just acquired by BAA, Naples, and several Australian airports. Add Swissport, the leading independent airport-handling group that Ferrovial recently bought, as well as the prospect of more airport privatisations, and the logic of a bid is obvious.

Ironically, Ferrovial would probably never have entertained such a bold move if it had not been edged aside – for political reasons – in last year’s French motorway privatisation contest. If it pulls off its UK coup, it will only have Paris to thank.

Looney Tunes

European delegates attending an important ministerial conference in Jordan next week might be tempted to spend their spare time in the safety of their hotels rather than indulge in a little sight-seeing. All because of the ongoing Islamic cartoon crisis and the seemingly orchestrated violence around the Middle East.

Yet the conference could help bring everybody back to their senses. It should show whether the ministers and senior officials attending are serious in their aim of attracting more private sector investment to the Middle East and North Africa.

The meeting follows more than a year of discussion and analysis conducted by these countries and the OECD to strengthen their economies and create a more attractive investment climate.

The stakes are high. Although private sector investment has been increasing – it reached about $10bn in 2004 – growth has continued to lag other developing regions.

By 2020, between 80m and 100m new jobs will have been created in all these countries, according to the OECD, and economic growth will need to be lifted to at least 6-7 per cent a year to address demographic challenges.

Not everyone is blessed (or cursed) with oil, and individual economic and social situations vary sharply from country to country. But most governments realise that reform is crucial to encourage private sector investment.

The meeting is expected to adopt a Declaration of Common Principles and Good Practice for attracting investment. That might prove to be of little use if another European diplomatic mission goes up in flames in the meantime.

Elegantly aloof

So Hermès is not for sale. The celebrated maker of silk ties and scarves and other elegant and expensive clothes and accessories will not be swallowed by a competitor any time soon – assuming chief executive Patrick Thomas has rightly read the mood of the family that controls the company.

The suggestion that the clan could be willing to sell was partly fuelled by the announcement in September that Jean-Louis Dumas, a member of the controlling family, would be retiring from his co-chief executive and artistic director roles.

But that particular extrapolation rather ignored the fact that the creative direction of the group was being entrusted to a new generation of family members.

Subtract the noise about takeovers, and the hefty increase in the company’s share price is harder to justify. At 7.2 per cent, Hermès’s sales growth was very healthy last year, but not as strong as at rivals LVMH and Gucci.

But then Hermès seems to want to grow more slowly than the rest of the sector, believing a more measured approach to expansion will avoid debasing the brand.

This may well have merits as a long-term approach to nurturing the business – but on its own it will not produce the kind of short-term fireworks the current stock valuation seems to expect.

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