The City may come to regret its foreign influx

As one of the sharpest market-makers in the business, it is hardly surprising that Smith New Court should have such a keen eye for the main chance. The Brothers, as SNC is still known to many in the City, are holding out for a hefty price from their competing suitors, Merrill Lynch and Commerzbank. So too, no doubt, is Evelyn de Rothschild, who holds the key to any deal with his 26 per cent stake in SNC. Nevertheless, there is a smack of opportunism in seeking to sell out at this juncture. After having been mauled in the bear pit over much of the past 18 months, international securities houses are at last beginning to breathe more easily again. There is little immediate pressure on SNC to give up its independence.

SNC may well have judged that it needs to pull in the bids while it is still riding the top of the market. There is no doubt that SNC has built up a successful business in recent years. When Rothschild took its stake 10 years ago, the jobbing firm was the junior partner. Now it looms over the blue-blooded merchant bank. Even so, in the sort of global league where SNC is having to compete today, it remains a relatively small player. By seeking to cash in now, Michael Marks, chairman, is pursuing a canny strategy.

If the deal goes through, it will bring to four the number of securities and investment houses that have fallen under the foreign hammer in as many months. If any of the remaining targets, such as Lazards or Schroders, succumb, it will most likely be to a foreign bank too. Looking at these developments positively, the foreign invasion helps to underpin London's position as the pre-eminent European financial centre. There is something in the argument that it matters less who owns and controls the business than where it is carried out. As foreign firms like Deutsche Bank expand their investment banking business, the City benefits in terms of jobs and wealth.

The fact that so many of the City's key players are being absorbed into foreign operations is nevertheless good cause for concern. It is all very well to talk of the global market place, and global businesses where national interests no longer play a commanding role. But things are never quite so clear-cut. Every firm has its roots somewhere, and that is where the strategic decisions are taken. Those decisions cannot help but reflect the national interest to some degree. Should there be a big investment banking shakeout in the future, the City may rue the fact that those deciding which way to jump are sitting in Frankfurt, Zurich, Amsterdam and New York.

Good ole boys on the move

Those who thought the highly leveraged takeover bid was a phenomenon that died with the 1980s clearly forgot about the regional electricity companies. Bog standard, low-tech monopolies with utterly predictable revenue streams and a cost base that cries out to be cut, they are the leveraged buyout specialist's dream come true. Only this time the leveraged bid comes not from the wizzes of Wall Street but from the "good ole boys" of Alabama.

Behind Southern Electric International's pounds 1bn offer for South Western Electricity lies an attempt to make South Western pay for itself, or at least a large part of itself. For obvious regulatory reasons, Southern is fudging the issue of whether the debt it takes on to make this offer is collapsed back into South Western or left in the vehicle making the bid but plainly it would like to do the former. Whether Professor Stephen Littlechild is going to agree with this approach is anyone's guess.

According to Southern, it is common in the US for a utility like South Western to have a debt gearing level of around 120 per cent. All Southern's American utilities are structured this way - 55 per cent debt, 45 per cent equity. Since, for a company of Southern's size, debt is a less expensive form of capital than equity, it actually makes sense to finance a utility in this way; the effect is to cut cost and benefit the consumer. That's the argument, anyway. Regardless of how reminiscent of Michael Milken this might sound, there may be something in it.

The problem for Southern is that it begs the question of why not just let South Western do the same thing for itself; there is no monopoly on financial engineering of this type. Given the scope for gearing up, it cannot be beyond the wit of South Western's directors and advisers to come up with a package worth more than the pounds 9 a share Southern is offering. Although South Western may find the scorched-earth defence used by Northern to defend itself against Trafalgar House hard to stomach, it provides the company with its best hope of survival.

Gestetner finds a saviour

Gestetner, one of the progenitors of the original office duplicating machine, could soon lose its independence to the photocopier giant Ricoh. In announcing its intentions yesterday, the Japanese group is showing a degree of opportunism not usually associated with companies from that part of the world.

The stream of bad news from Gestetner in the past 18 months or so culminated in May with the revelation that "serious operational difficulties" in Canada would slash profits this year, knocking a third from the value of the shares. Within two months of this latest blow to Gestetner, the Japanese have moved.

Inchcape, which has seen the value of its 15 per cent stake tumble since buying in at an effective price of 132p in May 1993, must have breathed a sigh of relief when approached by Ricoh to sell. The 90p offer from Ricoh now gives it the chance to cut its losses and get out completely. There is little doubt that Gestetner needs some sort of saviour. Gearing was 62 per cent at the end of last year and the fledgling profits recovery in 1994 has been knocked on the head by the Canadian difficulties. It is important to the Japanese that Gestetner should be healthy since it accounts for 15 per cent of Ricoh's non-Japanese sales. Moreover, buying Gestetner might enable Ricoh to boost its own sales further by pushing out the 25 to 30 per cent of Gestetner supplies which come from other makers and substituting them with its own.

Analysts estimate around half of Gestetner's sales and 80 per cent of its profits come from supplies such as paper, inks and toner. That gives Ricoh a motive to secure the machine distribution side of the business before incumbent management takes the scalpel to potentially less profitable machine sales.

Ricoh argues that rapid changes in photocopiers, including the introduction of colour and networking with computers, make it essential that it gets closer to the consumer. Absorbing a major distributor helps to achieve that aim, while consolidating the company's position in Europe. If Ricoh succeeds, it will mark the end of yet another once-proud British manufacturing name. Gestetner's failure to innovate appears to have sealed its fate. Its only manufacturing interest now is in making the ancient duplicators for which it was once famous.