PRESS DIGEST - British business - Feb 7

The Mail on Sunday

US IMPOSES ETHICS WATCHDOG ON BAE

The US Department of Justice has imposed an "ethics monitor" on BAE Systems (BAES.L), giving it the power to veto the recruitment of sales agents by the defence and aerospace company anywhere in the world. On Friday, BAE paid 250 million pounds ($392.9 million) in fines in the US for misleading authorities about payments in Saudi Arabia, and 30 million pounds in Britain for failing to adequately record payments made in Tanzania. It is expected that the ethics watchdog will not be monitoring BAE indefinitely but it remains unclear exactly how long the position will last.

LLOYDS HOLDS TALKS TO SELL DEBT-RIDDEN INTEGRATED FINANCE

State-backed Lloyds Banking Group (LLOY.L) is holding negotiations to sell its controlling stake in former HBOS division Integrated Finance. Lloyds inherited Integrated Finance, which amassed huge losses as loans turned bad and investment values crumbled, when it acquired HBOS at the height of the banking crisis. It is understood that 3i (III.L), Advent International and Coller Capital are considering a deal that would see the business move as a single unit. If successful, an agreement would see Lloyds keeping the debts owed by Integrated Finance and maintaining a minority stake in the investor.

HOMEBASE IN BATTLE OF THE 5 POUND DIY BARGAIN

British home improvement and garden store Homebase is preparing to wage a price war against larger rival B&Q, in what it expects to be a slow housing market. The retailer, part of Home Retail Group (HOME.L), is marketing a range of 350 Value products, with half of them costing less than five pounds. Managing director Paul Loft described 2009 as a tough year with little growth and an uncertain outlook for 2010, but he believes consumers have caught the DIY bug and is targeting the Value range at cash-strapped home improvement enthusiasts. Loft said previously customers saw Homebase as more expensive than competitors but now the retailer is saying "we can match that value."

The Sunday Times

TULLOW NEARING 2.5 BILLION DOLLAR WINDFALL

Tullow Oil (TLW.L) will sell half of its five billion dollar stake in Ugandan oil fields to China National Offshore Oil Corporation. French oil group Total (TOTF.PA) could become an equal partner in the fields with the Chinese and participate in their development. The sale of the three blocks - worth between 4.5 billion and five billion dollars - in the Lake Albert basin forms part of a larger development plan. The deal is likely to include a secondary listing of Tullow's shares on the Ugandan stock exchange and is expected to be announced this week after Ugandan president Yoweri Museveni gave it the go-ahead.

ROSE ON M&S CHIEF: WE CAN'T PAY PEANUTS

Marks & Spencer (MKS.L) executive chairman Sir Stuart Rose has defended the 15 million pound pay package of the retailer's new chief executive Marc Bolland. Rose told The Sunday Times: "If you pay peanuts, you get a monkey." Robert Talbut, chief investment officer at Royal London Asset Management, said the package could lead to further escalation in executive pay. He also expressed frustration that M&S had failed to consult shareholders about the package. Bolland will receive a basic salary of 975,000 pounds a year and in his first year could earn an additional 6.3 million pounds in performance-related pay.

BONUS STORM AS LOSSES HIT SEVEN BILLION POUNDS AT RBS

Royal Bank of Scotland (RBS.L), currently 84 per cent owned by the state, will announce losses of over seven billion pounds for 2009. However, the Treasury is still expected to approve a total bonus pool of around 1.3 billion pounds. Talks between RBS and the Treasury are expected to conclude within 10 days, ahead of the publication of the bank's full-year results. Chief executive Stephen Hester has said he will pay investment bankers "the minimum we can get away with". Some banks, including Barclays Capital (BARC.L), UBS (UBSN.VX) and Morgan Stanley (MS.N), have raised salaries by as much as 100 per cent in exchange for reduced bonuses.

SHAREWATCH

Evolution Group EVG.L (hard to predict)

The Sunday Telegraph

RIO TINTO TO REPORT IT HAS HALVED DEBTS

Mining giant Rio Tinto (RIO.L) is likely to announce that it has halved its debt pile when it reveals full-year results on Thursday, meaning it may reinstate its dividend. The company was carrying 24.9 billion pounds of debt after it bought Canadian aluminium group Alcan, but the subsequent collapse of global markets restricted its ability to service the debt. However, after making a number of recent asset sales, Rio is expected to reveal that it has significantly exceeded a commitment to reduce net debt by ten billion pounds over 2009.

GRAINGER FACES REBELLION OVER DEPARTURE PACKAGE FOR CHIEF

Grainger, the residential property specialist, could face a shareholder rebellion at its annual meeting on Wednesday over payments made to the departing chief executive. Rupert Dickinson was paid 2.98 million pounds following early retirement on health grounds. The Association of British Insurers has issued a red-top warning over the remuneration report, while fellow investor Pirc has urged shareholders to vote against it. An ABI spokesman said: "We are flagging it up so shareholders can make a responsible voting decision". Grainger's spokesman said: "The board considered that this settlement was in the best interests of the company."

PREMIER MOVES TO OFFLOAD PENSION RISK

Premier Foods (PFD.L), the company behind Mr Kipling and Hovis, is closing a deal which will pass on the longevity risk of a two billion pound pension scheme. Sources report that trustees for the Rank Hovis McDougall pension scheme are finalizing a deal to offload the risk of their ageing workforce to specialist reinsurers. Premier took over Rank Hovis McDougall in 2006 and promised to pay at least 40 million pounds into the pension fund every year, which at the time was 120 million pounds in deficit. A Premier Foods spokesman said that the developing market for longevity transactions represented part of its investment strategy.

SUNDAY QUESTOR

GlaxoSmithKline (GSK.L) (buy)

Electrocomponents (ECM.L) (buy)

The Independent on Sunday

BANKS BID FOR TWO BILLION POUND ARRIVA DEAL

Sunderland-based transport group Arriva (ARI.L) will move closer to a merger with French national rail operator SNCF with the appointment of deal advisers this month. Arriva, which is normally advised by Deutsche Bank (DBKGn.DE) and NM Rothschild, said last month that it was in merger talks with the transport arm of SNCF subsidiary Keolis. However, several investment banks including Lazard, BNP Paribas (BNPP.PA) and JP Morgan are reportedly interested in roles. Keolis and Arriva are of similar size, so a deal could double Arriva's market capitalisation to nearly two billion pounds.

FRANCE'S GDF TO SWEETEN UK GENERATOR OFFER

French power giant GDF Suez (GSZ.PA) is considering a new bid for independent British power generator International Power (IPR.L). GDF's earlier offer to transfer assets into IP in return for a majority stake was last month rejected by IP, which believed the bid undervalued the British company. A source said the French firm was considering a sweetened offer, likely to include cash for shareholders, while a market source close to IP said any offer would have to include a premium on the firm's current market value, which is nearly five billion pounds.

CITI HITS BACK AS HANDS TRIES TO BLOCK TRIAL MOVE

Guy Hands, the private equity tycoon who bought EMI for 4.2 billion pounds in 2007, is suing US investment bank Citigroup over claims he was misled into thinking there were other bidders and ended up paying too high a price. Hands is proposing the trial takes place in New York, where Citi is based, but the investment bank wants the trial based in London where the majority of the transaction took place. Hands opposes the move as he would be required to testify and does not want to enter the UK as he legally avoids high rates of tax by living in Guernsey.

The Observer

ARCH CRU BOSS BLAMES MANAGERS OF FAILED FUNDS

Jon Maguire, the chairman of Cru Investment Management, has written to the Serious Fraud Office alleging that improper behaviour by the investment managers of funds he marketed may have contributed to the Financial Services Authority's suspension of the 400 million pound investment vehicle last year. Maguire alleges that Arch Financial Products, which managed his CF Arch Cru funds, made investments that ran contrary to its status as a fund of funds, but Arch has refuted the claims and insisted that falls in the value of the funds were in line with those experienced by the wider market. The SFO is not investigating Maguire's claims, but is thought to have asked the FSA to continue monitoring the situation.

TORIES WILL ALLOW NATIONAL EXPRESS TO BID FOR RAIL DEALS

The Conservative party has said that, if elected, it would allow National Express (NEX.L) to re-enter the rail franchise market in two years time. The government has insisted that National Express will not be allowed to re-enter the market, due to the bus and coach group's controversial decision to relinquish its 1.4 billion pound east coast franchise. National Express' chairman John Devaney is understood to have received qualified assurances after meeting with members of the Conservative transport team, and a Tory spokesman said the group would be expected to sit out the next round of franchise bids but would be able to bid for contracts that become available in 2012 and 2013. .

PRINGLE THROWN 18 MILLION POUND THREAD

Pringle's latest accounts reveal that the fashion group's foreign owners - Hong Kong textile dynasty the Fang family - have injected a further 18 million pounds into the loss making brand. The Scottish group, which reported a 9.3 million pound shortfall for the year to March 2009, is attempting to become a Burberry-style luxury label and the continued investment is seen as a sign of faith in chief executive Mary-Adair Macaire's strategy. Sales were flat at 17.3 million pounds, while gross margins rose from 39 per cent to 43 per cent.

Prepared for Reuters by Durrants ($1=.6363 Pound)