Vodafone casts doubt on talk of takeover slowdown

London Briefing:Even as a new report this week predicted the end of the long-running global takeover boom, rumours of a mammoth $172 billion (€125 billion) deal were swirling through the London market.

Fuelled by a detailed although unsourced report in the Financial Times, the market was set alight on Monday by talk that the telecoms group Vodafone was preparing a surprise assault on its US rival, Verizon Communications.

The two companies together own Verizon Wireless, America's second-largest mobile phone operator. Verizon has control, with a 55 per cent stake in the wireless business, and it had been thought that the US firm would buy out Vodafone, rather than the other way round.

As its shares slipped on prospects of what would be one of the biggest takeover bids ever seen, Vodafone took the unusual move of stating publicly it had no plans to launch an offer.

Despite that, the market is convinced that the UK firm had been actively considering such a move. And that was greeted with alarm in the City, where Vodafone is still rebuilding its reputation after its disastrous takeover of the German Mannesman business in 2000, a deal that marked the peak of the dotcom boom.

Vodafone is already being targeted by activist investors, who are attempting to engineer a showdown at the group's annual meeting next week.

The rebel shareholder, Efficient Capital Structures (ECS), wants the group to hand its 45 per cent Verizon Wireless stake back to shareholders in a move that would return £38 billion to investors but would also see Vodafone take on a huge amount of debt as a result.

ECS is backed by the former Marconi executive John Mayo and Glenn Cooper, the City banker who floated Manchester United. Ahead of next Tuesday's shareholder meeting, they have been targeting Vodafone's US investors, who hold as much as 30 per cent of the company's shares, calling on them to support the four resolutions that will be put to the meeting.

The influential Association of British Insurers (ABI) has already refused to back the Vodafone board, although it has stopped short of telling its members - who speak for 20 per cent of the shares listed on the London Stock Exchange - to support the rebel shareholders.

Speculation on the Verizon deal came as a new report predicted that the global wave of merger and acquisition activity is set to peak this year.

Despite the blistering pace of takeovers in the first half of this year - a 51 per cent surge to $2.8 trillion globally - the momentum will not be sustained and, according to the report from KPMG, the next few years will be marked by fewer but larger transactions. KPMG makes the point that the last time there was a fall in the number of deals accompanied by a rise in the average transaction size was at the time of the dotcom boom in 2000.

Another report this week drew a further intriguing, and perhaps alarming, parallel with the days of dotcom bubble. Research from Ernst & Young showed that profit warnings issued by UK-listed firms are at their highest levels since the dotcom bust of 2001.

Earnings forecasts were cut by 191 companies in the first half of this year, an increase of 13 per cent on the first half of 2006, with most companies blaming a slowdown in sales. In 2001, the figure for profit warnings was over 230.

This time round, the list is topped by software companies, followed by support services firms and then retailers.

Although Ernst & Young makes the point that the economy is in better shape now than it was in 2001, the figures illustrate the difficulties being felt by UK plcs following the past year's interest rate rises.

With at least one more rate hike on the cards, it seems reasonable to assume that the tally of profit alerts will head higher as the year goes on.

Potter book row

A furious row has erupted between Harry Potter publisher Bloomsbury and the supermarket chain Asda, threatening to mar the eagerly-anticipated launch of the seventh and final volume of the boy wizard's adventures.

In an increasingly bitter and very public spat, Bloomsbury is refusing to supply Asda with the 500,000 copies of Harry Potter and the Deathly Hallowsit has ordered for what will be the publishing world's biggest-ever launch at midnight on Friday.

The source of the dispute is ostensibly an unpaid bill for an undisclosed amount, which is either owed by Bloomsbury to Asda, or Asda to Bloomsbury, or both, depending on which side you are talking to at the time.

Asda has accused the publisher of profiteering by pricing the 600-plus page volume at £17.99, compared with £11.99 for the first volume 10 years ago. Both sides became increasingly hysterical as the dispute escalated yesterday, with Asda claiming the nation's children were being "held to ransom" by the publisher.

Bloomsbury, meanwhile, dismissed Asda stores as "soulless sheds" and said that children would prefer the magic of buying the books in small, independent book stores.

That may well be true, but specialist booksellers are losing out on the boy wizard bonanza because they simply cannot match the prices being charged by the big supermarket chains.

Tesco, for example, is offering the book at just £8.87, which is even less than the wholesale price of £9.89.

Selling at a loss may not appear to make particularly good business sense, but the major chains are prepared to offer Harry Potter as a loss-leader because of the huge volume of traffic the launch will attract to their stores.

Included in that traffic will be more than a few owners of specialist bookstores.

Unable to compete with the big boys on price, many apparently plan to queue alongside the hoards of excited children at midnight as they source their supplies from the local supermarket.

Fiona Walsh writes for the Guardian newspaper in London