U- and Z-Turns Of The Day

U-Turn

From the BBC:

Telecoms giant BT is in talks with Telefonica about buying the O2 mobile network from the Spanish firm...

The irony is...

In 2002, BT spun off O2, then called BT Cellnet. In 2005 it was acquired by Spain's Telefonica for £17.7bn.

Taking irony to the next level...

[O2's] value is around half that paid by Telefonica. Deutsche Bank values O2 UK at £9bn, while UBS values it at £9.6bn.

Z-Turn

From the FT:

Germany has made a dramatic appeal to Sweden to help it out of an energy dilemma that threatens Europe’s biggest economy as it shifts away from nuclear power and fossil fuels to renewable energy.

Oops, caught with their trousers down after they overreacted to the Fukushima meltdown.

And what does the German government want 'Sweden' to do..?

Sigmar Gabriel, Germany’s vice-chancellor, warned Sweden’s new prime minister Stefan Löfven last month that there would be “serious consequences” for electricity supplies and jobs if Sweden’s state-owned utility Vattenfall ditched plans to expand two coal mines in the northeast of Germany.

I'm not sure what level of irony we're on here. Waving the Greenie flag, the Germans want to go from nuclear to renewables... but first they're taking the retrograde step back to coal, and the coal which they want to use was theirs anyway before they sold it off to foreigners.

Squaring the circle, we get this...

Angela Merkel’s cabinet is due to meet next week to discuss mothballing some coal-fired power stations as a means of helping the country reach its carbon goals.

But Berlin’s lobbying of Stockholm underlines a view held by some in the German government that coal-fired generation is vital to the security of the country’s power supply.

Irrelevant Fact Of The Day

From Investments & Pensions Europe:

UK banks are reporting pension liabilities that in some cases exceed the institutions' total market capitalisation, with three of Britain's largest banks significantly worse off than mainland European rivals, a study by Citibank has found.

Examining FTSE 100 companies at the end of last December, the study noted that former public companies reported the highest pension liabilities when viewed as a percentage of the market cap, with British Airways and telecommunications provider BT cited as examples.

So what?

These businesses have a large positive value. From this value we deduct the amount of their liabilities to arrive at their market capitalisation (plus/minus the usual fluctuations in share prices). There is no need to compare this net value of the shares in a business with any specific category of liabilities, such as pension fund liablities, because those liabilities are already taken into account when working out the value of the shares.

To use a crude analogy: husband has take-home pay of £1,000 and his wife makes him hand over £600 of it for housekeeping. It would be misleading to say that her income exceeds his and hence that it is impossible for him to pay her £600 out of his £400 take home pay - they have a joint income of £1,000 and how they split it is up to them.

So instead of saying that BT has a market cap of £1 and net pension liabilities of £2, it is more accurate to say that BT has an 'enterprise value' of £3; £1 of which belongs to shareholders and £2 of which belongs to its pension funds.

Laffer Fun

As well as putting his name to the Laffer Curve, another of his great observations was that tax receipts fall by far less than you'd expect when tax rate cuts are announed in advance (and rise much less than you'd expect when people know that rates are going to go up) because of timing differences. This is largely a one-off thing and not to be confused with the general Laffer effect (i.e. the increase in economic activity wholly or partly balances out cuts in tax rates and vice versa).

There was a fine example in today's City AM:

BT HAS paid the latest instalment to its pension deficit programme nine months early in order to qualify for the tax deductible corporation tax rate of 28 per cent, rather than the 26 per cent rate that will apply from April.

BT says the decision to pay £505m into the BT Pension Scheme, the actuarial value of the £525m due to have been paid in December, made financial sense. The timing of the tax deduction will also be brought forward to the first-half of the upcoming financial year.

Whiney moany of the day

From the BBC:

British Telecom has been accused by a businessman of being unfair to rural areas after quoting more than £56,000 to install broadband at his farmhouse. Tony Simkin, of Beulah, Ceredigion, who has a jewellers in Somerset, wanted to file his VAT returns online. ..

Right. So although he is described as 'a businessman', he is in fact asking for broadband for his remote farmhouse. Why doesn't he get online at his jeweller's shop and file his VAT returns from there? What sort of insane commute does he do every day?

He added: "I believe it is grossly unfair of BT to ignore people in rural areas so that they can maximise their profits in cities and well populated areas."

Does anybody force him to live in remote farmhouse, miles from where his business is? Wherever you live, there's a trade-off. You prefer fresh air and trees to broadband? Move to the countryside. You like having broadband and a shorter commute? Move to the suburbs.

Is there any reason to assume that BT are trying to make an unconscionable profit on this? Maybe they are, in which case he simply declines their offer. Why is he whining about ignoring people in rural areas? Is he happy to put his stock in a van and drive round the countryside offering his wares to 'people in rural areas' for below cost? Or would he rather 'maximise his profits' by running his actual shop in a town-centre?

Twat.