A&L shows that it's tough as a minnow

The rush of blood in the banking sector prompted by the proposed merger between the Bank of Ireland and Alliance & Leicester is certainly overdone. This is not the iconic deal talked of in City boardrooms and at expensive dinner tables for the last couple of years.

It may be the largest financial deal in the British Isles since Lloyds and TSB in 1995, but it is a minor event on the financial landscape when compared with the mega-financial mergers in the US - Citibank/Travelers - or the current consolidation taking place in the French and Italian markets. Of course, Ireland is in euroland, but to define this as a trans-European deal, when in effect all that is happening is that two chains of building society branches, those of Bristol & West and Alliance & Leicester, are to be crushed together in the UK, is stretching things.

So much for the hype. But perhaps it was necessary for Peter White, who becomes chief executive of the enlarged group, and marriage broker JP Morgan to come up with some grandiose comparisons, to justify an exit price for A&L shareholders which analysts see as less than generous - especially as no special dividend is being offered to A&L shareholders as an incentive. Not surprisingly, there was speculation that the Bank of Ireland deal might tempt another, larger bidder into the field with a cash offer - A&L, having put itself into play, would find it difficult to claim the defences it gained at the time of its conversion.

The decision by Alliance & Leicester to jack it in does suggest, however, that the second-line former building societies are starting to find life as relative minnows in the plc zone quite challenging.

If Alliance, which is more interesting in some respects because of its Giro business, would prefer to be under alternative ownership there must be some sharp question marks over Northern Rock, Woolwich and now Bradford & Bingley, which is being required by its members to change its ownership structure. Only Halifax, because of its size and market share, could feel reasonably safe if there is a sudden scramble for mortgage assets. But it may also recognise that organic growth in a competitive market could be an awesome task.

A confident slug


Has there been too much optimism about the prospects for the UK economy this year? The revised gross domestic product figures for Britain in the first quarter suggest that the economy was flat. Despite a strong consumer sector, weak investment and a drag on the economy from the trade sector meant that growth was zero against a previous estimate of 0.1%.

This suggests that year on year growth is in the order of 0.6%, which will be tricky for the chancellor, Gordon Brown, who is sticking to his budget forecast of output expansion of 1-1.5%, although the survey data for the second quarter do look brighter.

The big issue for the rest of the year is what is going to happen to trade. The strong pound remains a drag on exports, although there are some signs of pick-up in both manufacturing and investment. However, the uncertainties on the horizon remain. World trade growth remains subdued, as a result of the fallout from the emerging market crisis.

Moreover, there is a risk that global confidence could slide as the endgame in the Balkans is approached, as was the case in the aftermath of the Gulf war. The recent suggestion has been that oil prices rising sharply and the money supply expanding again the odds on further cuts in UK interest rates had shortened. The sluggish growth prospect could change that.

WHS books in


WH Smith's ?185m offer for book publisher Hodder Headline is something of a curiosity. Just as everyone has been trained to think of WHS slightly differently, as the UK's answer to Amazon.com rather than a newsagent and book and music retailer, chief executive Richard Handover has jumped in a different direction. Publishing, shareholders are being told, is about content and Hodder Headline has plenty of it, in the shape of its online offer in education, reference and lifestyle. But is it really necessary to buy the whole company to achieve this? Could not a partnership deal have produced a similar result?

The recent history of media groups piling into book publishing because it is fashionable has not been entirely glorious, as groups as varied as Rupert Murdoch's News International and Pearson would testify. But there is a broader issue at stake here. The government, in the case of BSkyB/Manchester United, took exception to the vertical integration of content suppliers (the football club) and the carrier, BSkyB.

In the case of WH Smith, the nation's largest bookseller buying the third largest publishing house, similar competition issues might appear. At a time when Hollywood studios have recognised that exclusive deals with any single carrier are not in their best interests Hodder Head line might have reached a similar conclusion.

An exit for LIG


As always, the advisers have a terrible habit of conflating mergers, describing the combination of Seton Scholl and the London International Group as creating one of the UK's "premier health groups".

But while the new company, selling items from surgical stockings to condoms, might not create a Boots or a Glaxo Wellcome this is generally a good exit for LIG shareholders. The company's chief executive, Nick Hodges, has more or less nursed LIG back from the dead by judicious cutting and marketing.

In terms of industrial logic there does seem to be an opportunity to pool research and development, tidy up marketing and distribution arrangements and perhaps move some of Seton Scholl's production to cheaper LIG-controlled plants in the Far East.

If the promised cost reductions can be delivered this may be a merger to be supported.