Housebuilders stir the plot

Everyone knows we love buying houses. Look no further than the mortgage approval figures, which totalled 111,000 in July, according to the latest figures. No sign of the summer heatwave putting the block on sales there, then.

But are we about to see a spate of buyers snapping up the companies which build our houses? Yesterday's £480m bid from Taylor Woodrow for Wilson Connolly was just the thing to put a little autumnal snap into a slightly jaded stock market - but is it the start of a trend?

The rationale behind yesterday's offer is straightforward. The government wants more houses built to tackle the housing shortage. Buying Wilson Connolly will help Taylor Woodrow expand its land bank in areas where it believes expansion will come.

The fundamentals of the housing market remain "robust" in the company's eyes, justifying the premium it is paying.

That premium may be enough to deter rivals such as George Wimpey and Barratt Developments from tabling offers for Wilson Connolly.

The concept of buying a fellow housebuyer to extend the land bank - rather than going out into the market to acquire new building sites - could mean that other builders may soon find themselves the subject of tempting advances.

While the news is bullish for the sector - and the City will be cheered by a bid on the table with the possibility of more to come - it should not be taken to signal that an outbreak of takeover activity is on the way.

The mood in the stock market remains cautious - at least compared with the buoyancy which has kept houses prices pushing ahead.

Change of clothes


The headlines in the weekend papers said that Tom Singh had tabled a bid for New Look, the business he founded 34 years ago and, indeed, yesterday's statement from the company spoke of "a possible offer for New Look from a company backed by Tom Singh with private equity investment".

A casual reader might conclude that Mr Singh, currently non-executive chairman, is making a return to front-line retailing by bidding to take back full control of the fashion chain with the help of some venture capital chums. Cue comparisons with Philip Green, Tom Hunter and all the other wealthy retailers who prefer to do their thing beyond the gaze of the City.

That is not the story here. What you would not guess from the company's statement is that Mr Singh is looking to reduce his and his family's 28% holding. In the words of one of his advisers, the family would be "significant net sellers of shares" if the offer succeeds.

For him, it would effectively be a two-stage process: first sell to the private equity providers, Apax and Permira, then reinvest in the new owner of New Look.

The outside shareholders will probably not ask too many questions if the bid price matches the suggested 330p a share - it is the highest the shares have been since New Look floated in 1998 - but there is an interesting job here for the independent non-executives charged with protecting their interests.

The Singhs and the outside shareholders are in the same position, but only one of them will be reinvesting so the terms of that reinvestment should be more than just a curiosity. That is dou bly so as it looks unlikely that any other bidder will emerge to challenge the consortium that already has the founder and key shareholder on board.

Reverse charges


In 2001 when France Télécom floated Orange, one of the main aims was to give the mobile phone group its own acquisition capital. Now, in a neat reversal, France Télécom is using its own paper to buy out the minority shareholders in Orange, including a number of retail investors in the UK.

The deal makes sense, but then it would have made sense any time since the bottom dropped out of telecoms stocks.

One crucial change is that the dead hand of the state looks like being removed from France Télécom. Such a judgment may look harsh, given the French state's willingness to fork out for its share of this year's cash call. But one reason why France Télécom found itself with ballooning debt levels is that it had to fund its pre-slump acquisition programme with cash not shares, for fear of dilution. Now the state is prepared to give up control.

There is, too, a question of perception. France Télécom believes that it can now persuade investors to accept its paper in exchange for Orange shares. A year ago that might have been difficult.

At the time of the Orange flotation, it was downright impossible. Given the way France Télécom has managed to bring down its debt level and the promise of more to come from the combined cash flows of the traditional fixed line business and the mobile side, it looks more promising.

Investors are no longer dazzled by the potential growth of mobile but are now looking at the earnings potential of the two bits of the business and, as debt comes down, seeing the prospect of some of that cash flowing their way.