Paris and Berlin on slow train to co-operation

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The TGV Est Européen, the new high-speed train line connecting Paris to Strasbourg and beyond the German border to Frankfurt, Stuttgart and Munich, was inaugurated Thursday with all the inevitable pomp and circumstance of a cross-border venture grandly described as altering “the geography of Europe”.

Commercial services will only begin in June, but already rival German and French trains are testing the new track enabling them to travel even faster than on existing high-speed lines. It will take only 3 hours 45 minutes to travel from Paris to Frankfurt, 3 hours 50 minutes to reach Stuttgart and 2 hours 20 minutes to Strasbourg.

Yet before anybody gets carried away with all the rhetoric of how high-speed trains will one day revolutionise pan-European travel, nobody should forget how painful pan-European cross-border co-operation remains. The TGV Est is a classic example.

It has taken 15 years of negotiations to see the first German ICE high-speed train come to Paris. The Germans originally hoped to bring the Siemens-developed train to France via Brussels, but were outsmarted by the French. This time, they were determined to break down French resistance and have finally succeeded.

The stakes are high because France and engineering group Alstom clearly want to consolidate their lead in high-speed train travel. And although the TGV is quicker – and some argue more reliable –, the Germans argue that their train is more comfortable, passenger friendly and targeted at business travellers. Franco-German inter-city cross-border consumers will soon be able to compare. But the competition still risks being skewed given that five German trains will initially come to Paris every day, while 14 French TGVs will be travelling across the Rhine.

Brief lives

Organon BioSciences will go down as one of the shortest-lived pharmaceutical companies in history. Investors were gearing up to bid this week for minority stakes in the fledgling spin-off from Akzo Nobel. Instead, Schering-Plough snapped up the business.

If this has left a sour taste for investors (not to mention investment bankers expecting hefty commissions on the IPO), it has particularly upset private equity firms, which bid more than €9bn ($11.9bn) for Organon sight-unseen, but were rebuffed.

In preparing its €11bn binding offer, Schering-Plough, which had been in discussions of sorts for some time over Organon, had the benefit of much greater access.

A more transparent process from the start and greater access to such commercially sensitive data might have offered the prospect of a still more competitive tender for Organon.

The pressure will be on Fred Hassan, Schering-Plough’s chief executive, from his own shareholders. He has targeted annual $500m cost savings within three years, and continued growth, while proving that the deal is earnings accretive within the first year. Organon had better get ready to use some of the anaesthetics products from its own range.

Clinical trial

A year ago, a clinical trial for the experimental drug TGN1412 left six healthy young male volunteers fighting for their lives. It highlighted the international nature of the pharmaceuticals industry and the need for an equally cross-border response.

The drug was developed by Germany’s TeGenero, but with a clinical programme implemented by Parexel, a US-based contract research organisation. It received regulatory and ethical approval at its UK Northwick Park facility and was injected into patients of various nationalities.

The industry has been keen ever since to stress this was a highly unusual case involving an unprecedented reaction to an extremely unusual and novel mechanism of action. Rightly, it stressed there should not be a knee-jerk response from legislators.

That approach has largely been followed, with UK and European regulators drawing up new guidelines and the Association of the British Pharmaceutical Industry (ABPI) tweaking its own advice. Most important, it has triggered a round of soul-searching within companies to ensure good procedures are in place.

But there are limits to such a strategy. The ABPI’s guidance has no force, above all for foreign or UK-based companies that are not members – such as TeGenero.

Smaller biotech companies without “big pharma” resources also have less expertise on which to draw and far fewer alternative drugs in their pipelines to provide the hedge that might persuade them to err on the side of caution.

The UK regulator has introduced new procedures drawing on outside experts to assess the scientific risk involved in such novel compounds in future. UK ethics committees – and their international equivalents – also need to have clearer guidance on adequate insurance levels, likely to extend beyond the once-and-for-all cap approved for the six Northwick Park volunteers, who are covered for just £2m ($3.8m) between them.

Japan’s cash hoards under siege

Japanese companies have a penchant for hoarding cash. Mighty Takeda, Japan’s largest pharma group, is sitting on Y1,851bn ($15.7bn) in net cash, Canon on Y1,134bn and Matsushita on Y1,131bn, according to a UBS report.

Even Noritz, a maker of gas water heaters, feels it needs to squirrel away funds for future use even though it is not clear exactly what it might need the money for.

In a different age, such prudent financial management might have won plaudits. But Noritz and other cash-obsessed companies should wake up to the fact that given Japan’s developed capital markets, there are plenty of ways to access funds when the need actually arises.

A proposal by US investment fund Fursa Alternative Strategies that Noritz increase its dividend more than tenfold indicates shareholders are no longer likely to stand by quietly taking what meagre returns they get.

The Children’s Investment Fund is also calling on J-Power to more than double its dividend.

With hundreds of companies that have more cash than they know what to do with, Japan is fertile ground for such activity. And given that foreigners own about a quarter of Japanese shares, Noritz will hardly be the last company to be put on the defensive about its cash pile.

Britain plc laid bare

If ever there was a day when the state of Britain’s listed companies was laid bare for analysis, it was Thursday. At one extreme, Cadbury Schweppes, the confectionery and beverage group, was jumped into publishing plans for a demerger by the presence of Nelson Peltz, the US activist shareholder.

At the other, Vodafone marched one step closer to gaining control of Hutchison Essar, the Indian mobile phone group, and Imperial Tobacco boldly offered €11.6bn ($15.4bn) in cash for Altadis of Spain.

In between, companies such as Wm Morrison, the supermarket chain, to Prudential, the insurer, submitted their long-awaited strategic reviews to the scrutiny of investors.

Vodafone and Imperial demonstrate that it is possible to forge bold strategy in the public eye – and the fact that the former’s relationship with its shareholders looked beyond repair less than a year ago ought to offer a crumb of comfort to those quoted companies, like Prudential, that are twisting in the spotlight of investors’ expectations.

Those expectations are supercharged by the pressure of activists, like Mr Peltz or certain hedge funds, the desire of long-only fund managers to achieve absolute, rather than relative, returns, and the unavoidable “wall of money” managed by private equity firms. It is understandable that in these circumstances, few chief executives stand up, in public or in private, to list the benefits of being publicly listed, only grudgingly conceding that it “comes with the territory”.

Pressed, executives of quoted companies cite the public profile and prestige of a listing. But those assets seem more valuable to new arrivals than to most established groups. While many small- and medium-sized listed companies are ignored, a few of the executives of big companies on show Thursday secretly yearn for a lower profile.

But at this level – whether companies are publicly or privately held – the pressure is on. True, private companies may have more leeway to deviate from a straight line between today’s results and an aggressive target set for three years hence. But when their owner is breathing down their neck, surely managers of such companies must yearn for the luxury of being able to answer to a diffuse group of investors.

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