Former Tesco Boss Leahy Eyes £1bn B&M Float

By Mark Kleinman, City Editor

B&M Retail, one of Britain's fastest-growing discount retailers, is drawing up plans for a flotation that would involve a return to the London stock market for Sir Terry Leahy, the former Tesco boss.

Sky News can reveal that Clayton Dubilier & Rice (CD&R), the investment firm which owns 60% of B&M, has begun mulling a public listing less than 12 months after striking a deal to take control of the company.

No firm decision has been taken to pursue a flotation, but sources close to the situation confirmed on Friday that CD&R could decide to appoint investment bankers to manage one before the end of this year.

An initial public offering of shares would take place in 2014 under one plan being considered.

If the company does opt to go ahead, a listing would see Sir Terry, the chairman of B&M, re-emerge at the helm of a London-listed business more than two years after stepping down as chief executive of Tesco.

The contemplation of a float, which would value the discount chain at well over £1bn, is rapid even by the standards of private equity firms renowned for their 'quick flips' of companies under their ownership.

The fact that CD&R is examining the prospect underlines the stellar financial performance of B&M, which recorded a 71% jump in pre-tax profits to £88.3m last year and which is understood to have enjoyed a successful 2013.

Its major growth spurt occurred under the ownership of three brothers - Bobby, Robin and Simon Arora - who took the chain from fewer than 20 shops to more than 350 today.

B&M employs nearly 15,000 people and is one of a number of retailers which have taken advantage of the downturn in the economy after the financial crisis to sell food, toys and homewares at bargain prices.

Poundland, which is controlled by Warburg Pincus, another private equity group, this week interviewed eight investment banks as it pursues a stock market listing likely to value it at more than £700m.

A number of other investment groups, including KKR, are said to be interested in pre-empting a Poundland flotation by tabling offers to buy the company.

Poundland is chaired by Andrew Higginson, who was a senior executive at Tesco during Sir Terry's stint at the helm.

Sir Terry transformed Tesco into the world's second-largest retailer, behind Wal-Mart, although the British supermarket giant's costly recent exit from the US has prompted a partial re-evaluation of his record.

Since leaving Tesco, Sir Terry, at one time named the most powerful unelected person in Britain, has focused on private investment activities and written a book about corporate leadership.

CD&R declined to comment.

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McDonald's To Drop Heinz After CEO Change

McDonald's has announced it will end a 40-year relationship with Heinz as the sauce company is now led by the former chief of rival Burger King.

"As a result of recent management changes at Heinz, we have decided to transition our business to other suppliers over time," McDonald's said in a statement.

"We have spoken to Heinz and plan to work together to ensure a smooth and orderly transition."

The switch will be more apparent outside the United States, as McDonald's only serves Heinz sauce in Pittsburgh and Minneapolis.

Heinz has had a 40-year-old relationship with McDonald's

Heinz is now run by Bernardo Hees, former head of Burger King, 

Sauce packages handed out at McDonald's restaurants in the United States often say only "fancy ketchup". Most in-store sauce dispensers are not branded.

The move by McDonald's could benefit Heinz rivals Hunt's, owned by ConAgra Foods Inc., and Del Monte.

Warren Buffett's Berkshire Hathaway and an investment fund affiliated with 3G Capital bought Heinz for $28bn (£17bn) in June and immediately named Hees CEO.

Burger King went public in June 2012, less than two years after it was privatised by 3G Capital Management LLC, which retains a stake in the fast-food chain.

Burger King has been a Heinz customer for "decades" and uses its products in roughly 80% of markets around the world, spokesman Miguel Piedra said.

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Serco Boss Quits Amid Contracts Scandal

Serco, the outsourcing firm at the centre of a Government contract scandal, has confirmed its chief executive has stepped down.

The company said Chris Hyman was leaving in a last-ditch bid to restore its reputation amid a wider restructuring - splitting the British central government work into a separate unit - to improve transparency.

It was told in September it could be investigated by the Serious Fraud Office (SFO) alongside rival G4S after an audit showed they charged for tagging criminals who were either dead, in prison or never tagged at all.

The study resulted in Serco's £285m prison escorting contract - which covers London and East Anglia - being placed under administrative supervision in August.

Serco then agreed to repay all past profits made on the prison escorting contract and forgo any future profits but insisted that no member of the board had knowledge of the alleged fraudulent practice.

Mr Hyman - who has run Serco since 2002 - said: "I have always put the interests of Serco first. At this time, nothing is more important to me than rebuilding the relationship with our UK government customer.

"In recent weeks it has become clear to me that the best way for the company to move forward is for me to step back.

"I have been fortunate enough to have had the privilege of working at a great company with extremely talented people.  I wish everyone at Serco the very best for the future."

An inquiry, requested by both the Ministry of Justice and Serco's directors, is currently being carried out by City of London police.

It is investigating the actions of the staff working on the prison escorting contract.

Serco said Ed Casey, who has led its Americas Division, will become acting group chief executive and its board would be strengthened as part of its efforts to bolster scrutiny.

A Government spokesman said: "The Government will take full account of all the changes Serco have made today.

"Whilst it is early days in their programme of renewal, this is a positive move by Serco and a step forward."

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Rail: Labour 'Open To Renationalising Network'

Labour's new shadow transport secretary says she is "open" to the idea of renationalising Britain's rail network, as the Government set out plans to return the East Coast Main Line to the private sector.

The London-to-Scotland line has been run under the control of the Department for Transport (DfT) since National Express pulled out of the franchise in November 2009.

Labour and rail unions have bitterly opposed the reprivatisation of the line, pointing to the fact that East Coast has returned large amounts of money to the Treasury since it has been in the public sector.

Labour has also been unhappy at what it sees as the haste by the Government to get the East Coast line back into private hands even though the whole nationwide franchise programme has been put back and altered following a fiasco over the West Coast bidding process.

Mary Creagh, who took over transport portfolio earlier this month, said Labour would be "pragmatic" in its approach, in contrast to the "ideological" privatisation of the East Coast franchise.

Asked if taking the network back into public ownership was an option, Ms Creagh told the Financial Times: "We're open to ideas. We don't rule anything out."

National Express pulled out of the East Coast Main Line in 2009

Ms Creagh also said it was "interesting" that foreign state-owned railways, including Germany's Deutsche Bahn, France's SNCF and Holland's Nederlandse Spoorwegen, were involved in firms running the UK's network and using the money generated to improve services in their home countries.

She said: "We want a model that is going to work. What's interesting is that we have (foreign) state-owned railways running our services and investing money back into their networks ... If it works as a model for them, why can't it work as a model for the UK?"

The Government officially launched the search for a new East Coast Main Line operator by publishing a prospectus.

Bidders for the key long-distance rail route will have to offer passengers "innovative timetables" and a better travelling experience.

Transport Secretary Patrick McLoughlin said: "We want to see a revitalised East Coast railway, one that both rekindles the spirit of competition for customers on this great route to Scotland and competes with the West Coast on speed, quality and customer service."

Eurostar and Virgin are reportedly among those interested in buying the line.

The DfT plans to confirm which prospective bidders have passed the pre-qualification stage in January.

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Business Round-Up And Week Ahead

Sky's Naomi Kerbel offers a round-up of what's coming up in the week's business news.

:: Monday October 28

Apple reports its full year results on Monday. The tech giant recently launched a slimmed-down version of its iPad tablet which will retail for £739 each.

:: Tuesday October 29

On Tuesday, the "Big Six" energy company bosses will give evidence to the Energy and Climate Change Committee about above average inflation increases to bills.

:: Wednesday October 30

The Federal Open Market Committee will decide on U.S. interest rates on Wednesday and Spain's national statistics office will publish its latest quarterly preliminary GDP data.

:: Thursday October 31

EU unemployment statistics are released on Thursday. As well as Starbucks interim results and Shell third quarter results.

:: Friday November 1

On Friday, the Royal Bank of Scotland will release third quarter results. It is now run by chief executive Ross McEwan who succeeded Stephen Hester last month. 

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UK Economy: GDP Growth Accelerates To 0.8%

The Chancellor claims there is now "real momentum" in the UK's economic recovery after GDP growth of 0.8% was measured in the third quarter.

The Office for National Statistics (ONS) said it marked the strongest period of growth in more than three years - with services, construction and manufacturing all expanding.

It was also the third successive period of improving output, in line with the expectations of economists, though some had forecast growth to have reached 1%.

The ONS said construction - a sector bolstered by Government initiatives such as Help to Buy - surged by 2.5%.

George Osborne said: "This shows that Britain's hard work is paying off & the country is on the path to prosperity."

Prime Minister David Cameron tweeted: "Today's encouraging #GDP growth figures are another sign we are turning a corner."

Labour argued the growth was "long overdue".

Overall GDP was 1.5% ahead of the same period last year - a time when the economy was being boosted by the Olympics and Paralympics.

But the economy remains 2.5% off its pre-recession peak at the start of 2008.

During the third quarter, construction was boosted by new work on private housing and private commercial building as well as domestic home repair and maintenance but remained 12.5% off its 2008 high.

Housebuilders have been buoyed by the Government's Help to Buy scheme, which recently launched a new phase offering mortgage guarantees.

Production grew by 0.5%, though this remains 12.8% off its 2008 level, while within this manufacturing improved 0.9% in the third quarter.

The powerhouse services sector, which represents three-quarters of economic output, grew by 0.7% and is now 0.6% above its pre-crisis peak.

The largest contributions here came from business services and finance, followed by distribution, hotels and restaurants.

But the wider statistics highlighted one piece of bad news - in terms of UK growth.

The contribution from utilities - including gas and electricity - tumbled by 6.8% in the period, possibly a result of the warm summer compared to the same period last year which was largely a washout and cool.

The figure was seen as a potential factor behind the decision among energy suppliers to increase household bills - to make up for lower demand.

Chris Williamson, chief economist at Markit, said: "Britain is booming again with the economy showing the most sustainable and robust-looking upturn since the financial crisis."

But Alan Clarke of Scotiabank said the figure was a "tad disappointing" - given survey data indicating growth nearer 1% - and "wasn't a home run".

Shadow chancellor Ed Balls said: "After three damaging years of flatlining, it's both welcome and long overdue that our economy is growing again.

"But for millions of people across the country still seeing prices rising faster than their wages this is no recovery at all."

Dave Prentis, general secretary of the Unison union, said growth figures will "mean nothing to the vast majority of people in this country faced with mounting household bills and stagnant wages."

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Grangemouth's Future Saved In Last-Minute Deal

Grangemouth petrochemicals plant has been saved following a last-minute deal.

The 800 workers who were due to lose their jobs at the Falkirk plant - Scotland's largest industrial site and its only refinery - were told the news at 11am on Friday.

It came after the Unite union confirmed it would now "embrace" a survival plan in an effort to reverse a decision by Swiss-based owner Ineos to close the business.

Calum MacLean, chairman of Ineos' petrochemicals division, told a news conference a "great cheer" went up from workers as he told them their jobs were safe.

But he said "very limited redundancies" would have to be made.

Asked by one reporter if he had held a gun to Scotland's head, he replied: "I don't think that's the case."

He pointed out that Ineos had invested £1bn in the business and would invest another £300m to secure its future for at least the next 15 years.

Another £300m will be invested at the site, Ineos says

He said it was "only right" that by making such a "huge investment" the company had to make sure it had a "long-term sustainable base".

The agreement was to see fuel production resume at the company's oil refinery on Friday after a shutdown of more than a week.

The closure would have been a major setback for the Scottish National Party, which is leading the campaign for Scotland's independence from the UK.

Scotland's First Minister Alex Salmond said: "This news is a tremendous fillip for the workforce and the whole Grangemouth community, following what could have been a potential disaster."

Later, in an interview with Sky News, Mr Calum MacLean declined to say how many redundancies would be made. He said the £300m would be spent on building a new gas terminal at the site.

Asked what he thought of union tactics during the negotiations, he said it would have "saved a lot of traumatic effects" if union officials had begun the talks a week ago with the same attitude they had had over the past two days.

The closure would have been a huge blow for Alex Salmond

Jim Ratcliffe, chairman of Ineos Group, said: "This is a victory for common sense. Unite advised employees to reject change and vote for closure. Thank goodness people finally came to their senses. Grangemouth now has a great future."

Ineos said Unite had made a "dramatic U-turn" and had agreed to a three-year pay freeze, no strikes for three years, and moving to a "modern" pension scheme.

Earlier, Unite's general secretary Len McCluskey said shop stewards had decided to accept the company's survival plan "warts and all" in the wake of the closure decision.

Unite's Scottish secretary, Pat Rafferty, said: "Grangemouth is the powerhouse of the Scottish economy - it now has a fighting chance of upholding this crucial role into the future.

"Obviously today's news is tinged with sadness - decent men and women are being asked to make sacrifices to hold on to their jobs, but the clear wish of our members is that we work with the company to implement its proposals."

Ineos caused shockwaves on Wednesday when it announced it could not continue to operate its loss-making petrochemicals division, leaving hundreds of staff at risk and many more contractors facing the axe.

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Family Not Seeing 'Green Shoots' Of Recovery

By Emma Birchley, East Of England Correspondent

The green shoots of economic recovery might be growing stronger but the Horton family is not feeling the effects.

"It's been really, really tough. We are struggling to make ends meet," said Spencer, 39, from Felixstowe.

He has his own recording studio and band, Mohawk, but he makes much of his money from teaching guitar, bass and drums as well as vocal coaching.

The past year has been difficult as the luxury of music lessons has been dropped by those struggling to meet the cost. Pub closures mean fewer gigs.

But there are tentative signs that things may be on the up.

He said: "The lessons have started picking up in the last month or so. I've got five new students so that helps but I don't know how much of that is a sign that the economy is improving."

His wife, Morgan, is training to be a counsellor and volunteers her skills, but is also a self-employed massage therapist and has seen her business suffer.

She said: "I used to have a lot of clients who have a massage as a luxury or to treat chronic back pain but it got to the point that they had to make a choice because of money and the massage went.

"We have both chosen to be in professions that give back to the community and that keeps us going yet the Government does not value or recognise that."

The couple have two children, April, five, and Coby, two.

Keeping the house warm and the family well fed has meant putting up with increasing costs.

Mrs Horton said: "We don't buy luxuries very often and our food bill is still big. It's gone up by about a third in the last year or so.

"Energy is really expensive too. They say the national average is £1,400 a year and we pay close to double that in gas and electricity."

Keeping up with the bills meant they recently had to get a £10,000 loan.

She added: "It really frustrates me because I wanted to spend it on doing up the house but the overdraft kept creeping up so we had to pay that off."

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JPMorgan To Pay £3.2bn In Mortgage Settlement

JPMorgan has agreed to pay $5.1bn (£3.2bn) to resolve claims it misled mortgage lenders before the housing crash.

The deal settles a lawsuit brought by American regulators over the quality of mortgages sold to US loan giants Fannie Mae and Freddie Mac between 2005 and 2007.

The Federal Housing Finance Agency accused America's biggest bank of causing "billions of dollars" in losses to the two mortgage finance companies.

The two settlements - one of $4bn and another of $1.1bn - is less than half the amount JPMorgan is expected to pay for mortgage-related violations.

The $4bn fine relates to $33.8bn in residential mortgage-backed securities sold by JPMorgan to Fannie and Freddie between 2005 and 2007.

The remaining $1.1bn concerns claims JPMorgan made about single-family mortgages it sold Fannie and Freddie between 2000 and 2008.

JPMorgan CEO Jamie Dimon has been in talks with the US Justice Department

JPMorgan "falsely" told Freddie and Fannie the mortgages met the two agencies' standards for quality.

In reality, the assets were much lower quality than claimed. Many loans that were billed as safe later defaulted or were foreclosed.

The FHFA said JPMorgan's conduct "constitutes negligent misrepresentation, common law fraud and aiding and abetting fraud".

The securities were sold to Fannie and Freddie by JPMorgan and also by Bear Stearns and Washington Mutual, which were bought by the bank in 2008.

FHFA Acting Director Edward J DeMarco said: "This is a significant step as the government and JPMorgan Chase move to address outstanding mortgage-related issues."

JPMorgan is expected to pay a total of $13bn for mis-selling mortgage-backed securities in the run up to the 2008 financial crisis, say US reports.

A tentative deal has reportedly been reached between JPMorgan and the US Justice Department.

If the deal is finalised, it would be the biggest settlement of its kind ever paid by a US company.

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Osborne To Stop Short Of Full RBS Break-Up

By By Mark Kleinman, City Editor

George Osborne will stop short of ordering a full break-up of Royal Bank of Scotland (RBS) following a review that will aim to redeploy billions of pounds of capital for lending into the British economy.

Sky News understands that the Chancellor and senior Treasury officials will next week finalise a blueprint for the future of RBS, in which UK taxpayers hold an 82% stake, which avoids the need for a formal vote by independent City shareholders.

The key recommendations of a four-month review led by Rothschild, the investment bank, and BlackRock, the world's largest asset manager, are understood to focus on "internal surgery" rather than a wholesale break-up of the RBS group.

They will include the creation of a more formal internal "bad bank", a further reduction in the size of RBS's investment banking operations, a more aggressive strategy to resolve the future of impaired loans, and a number of other asset sales.

An announcement about the outcome of the review, launched by the Chancellor in June, could be made as soon as next Friday, when RBS publishes its third-quarter results.

"He will want to present it as a break-up, but it won't quite be at the most radical end of the spectrum of options," said a source close to the situation.

Treasury and RBS officials cautioned that final decisions had not yet been taken and that the shape of the proposals could yet shift significantly.

The announcement of the restructuring is expected to be made by the bank itself, rather than Mr Osborne.

Under the currently-envisaged plans, the shake-up would involve in the region of £40bn of RBS's bad assets being held within a rebranded non-core asset division, or "bad bank". That figure is at the lower end of a range considered during the review, according to insiders, and roughly corresponds to the size of RBS's existing non-core unit.

It will not require the separation of those loans from RBS by injecting them into an independent taxpayer-owned vehicle, and so will not trigger a vote from which the Government would be excluded under stock market rules.

That will enable Mr Osborne to present decisions about RBS's future as a fait accompli - presuming that he has the agreement of RBS's negating the risk of an embarrassing defeat at the hands of institutional investors.

As Sky News revealed in June, many big RBS shareholders are opposed to a full break-up, arguing that it would be costly, time-consuming and further delay - possibly by years - the sale of the Government's shareholding in the bank.

The bad assets identified by the review largely comprise loans within RBS's Ulster Bank and property lending portfolios, and will be more aggressively run off in the coming months by the bank's executives.

The commitment to accelerate this process may trigger further writedowns to their value, with the bank raising additional capital by selling other assets.

Citizens, the US retail bank, is likely to be floated earlier than a previous target date of 2015, while the international arm of Coutts, the wealth manager owned by RBS, is also a candidate for sale.

It was unclear this weekend whether Rory Cullinan, the executive who has overseen the massive shrinkage of RBS's portfolio of bad assets during the five years since it was bailed out, will continue to run the unit.

One challenge facing Mr Osborne will be the scrutiny of Andrew Tyrie, the MP who chaired the Parliamentary Commission on Banking Standards. In its report earlier this year, it called for radical action to transform RBS into a bank that could support the UK economy.

The resolution of the dispute over the future of RBS, whose shares languish well below the level at which taxpayers injected £45.5bn of equity in the autumn of 2008, will bring relief to RBS managers tired of repeated conflicts between the Chancellor and Stephen Hester, who stepped down as RBS chief executive last month.

Mr Osborne said in June that he would only proceed with a major shake-up at RBS if it delivered clear benefits to taxpayers and the UK economy through increased lending capacity and appetite.

A Treasury official said on Saturday that the Chancellor had been keen to identify a "headline number" that would demonstrate that inflated capacity.

He added that the structural review would be linked to a separate piece of work led by Sir Andrew Large, former deputy governor of the Bank of England, which has been examining the flow of credit from RBS to small and medium-sized businesses (SMEs).

The views of UK Financial Investments (UKFI), which manages the taxpayer's stake in RBS, will also be important.

James Leigh-Pemberton, the investment banker who on Monday takes the helm of the Treasury agency, was asked by Mr Osborne last year to conduct a review of RBS's structure.

Mr Leigh-Pemberton argued in favour of a more radical break-up of RBS than the Chancellor is expected to favour.

Since becoming RBS's chief executive several weeks ago, Mr McEwan has been working with the management consultancy Bain & Co on a review of RBS's operations and an examination of core client services.

In a memo to staff earlier this month, he said that the location of RBS's bad assets was less important than the bank's need to focus on improving service to customers.

"The future of this company will not be about whether we operate in particular areas or where our problem assets sit," he wrote.

"The future of this company is about how good a job we do for our customers, including those who are having difficulty repaying their loans. And it will be about how well we live up to all our responsibilities, particularly those we have to the UK."

RBS and the Treasury declined to comment.

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