BAe’s interest is in combining some of Thomson-CSF’s missile operations into the new Anglo-French joint venture

BAe’s interest is in combining some of Thomson-CSF’s missile operations into the new Anglo-French joint venture with Matra.The new company, to be called Matra BAe Dynamics, will be owned 50:50 and will have a British chairman and a French chief executive. The new grouping will provide a powerful European competitor to US groups such as Lockheed Martin which merged last year.France’s Aerospatiale and DaimlerBenz Aerospace of Germany combined their missile businesses six months ago.As part of the deal BAe has also agreed to “support” plans by Matra’s parent company, Lagadere, to acquire a majority shareholding when Thomson- CSF is privatised.A BAe spokesman said this could involve financial backing. When a company screams this loud, it generally means the regulator must have got it about right British Gas is unlikely to get much joy out of the MMC.. British Aerospace is set to back a joint bid for the state-owned French defence electronics group Thomson-CSF following the announcement yesterday of a pounds 1bn tie-up with another French group, the missile producer Matra Hachette. The announcement came on the eve of president Jacques Chirac’s state visit to Britain today and marks a further stage in Anglo-French defence co-operation following GEC Marconi’s link-up on sonars with Thomson.
BAe is to pool its own missiles division, BAe Dynamics, with those of Matra to create Europe’s biggest missile supplier with combined sales of pounds 1bn a year and 6,000 employees. Over the years ahead water, electricity, and, yes, Railtrack, too, will go the same way.

As the regulator, and in some industries competition, begin to bite, the spectacular returns of the early years give way to more pedestrian ones.For those of us who condemned Professor Stephen Littlechild for being too lax on the regional electricity industry, it is hard to summon up much support for British Gas. They are, however, having some of the privilege of monopoly removed from them. There is no doubting that it hurts when your sweeties are taken away, but it is hardly the same as being conned.The same fate has already overtaken BT. Far from being poor, the returns have actually been really quite remarkable given the type of company British Gas is. Furthermore, the underperformance of the past year has been caused as much by the company’s disastrous take-or-pay gas contracts as by the prospect of regulatory crackdown.What Ms Spottiswoode is now proposing is to reduce that overly generous rate of return to a more appropriate level.

Shareholders are not being subjected to the “biggest smash and grab ever”, one of the more ridiculous of the one-liners dreamt up by British Gas’s army of spin doctors to describe yesterday’s proposals. Across the lifetime of privatised British Gas, then, investors have enjoyed a good, if unspectacular, return, relative to other shares and a fantastically good one relative to other “low-risk” investments. Taking the total return to shareholders including dividend payments since privatisation, British Gas outperformed the rest of the stock market quite nicely until a year ago During that time the stock market has risen dramatically. In part this was deliberate – British Gas was underpriced to sell and thereby buy Tory votes. But there was also dramatic and to some extent unanticipated scope for improvement in the bloated tariff and cost structure inherited from the state.

For a while, British Gas and its shareholders made hay at the expense of their customers. If utility regulation works as it should, then this apparent imbalance is addressed at the time of the periodic price review when customers get to claim the efficiency gains achieved over the previous five years.That is precisely what is now happening and what was always meant to happen at British Gas. With the benefit of hindsight, it is obvious that the company was sold on terms which were far too generous to investors and did not adequately address the interests of customers. The result of this was that in the early years, shareholders enjoyed quite spectacular returns. Possibly it has been a somewhat accelerated one, but the glidepath is exactly as it should have been. But have they?

Certainly a very good case can be made for saying that the original privatisation prospectus was a false one.