Monday, July 30, 0730 BST
The bet
It’s a question to be taken by the horns: is the bull market over? The
Wall Street Journal says that last week's $2.1 trillion (£1 billion)
stock market rout seemed an overreaction to most observers, but others see a
storm brewing.
More on the markets here
Analysts who focus on fundamentals such as corporate profits and interest
rates say that the global economy continues surging and interest rates
remain low by historical standards. What matters, they say, is whether the
credit crunch starts to interfere with growth and interest rates.
But technical analysts or chartists, who base their opinions on a range of
sometimes arcane market data, say that the market is displaying many of the
characteristics before the peaks in 1987 and 2000.
Bloomberg is more certain of the way ahead. It says that US equities
are now the cheapest in 16 years.
More on US markets here
Never-never land
The debt that has fuelled the stock market rocket dominates British
broadsheets. The Daily Telegraph leads with a parliamentary report
that says the buyout industry's appetite for debt is potentially
destabilising the economy.
More here
The Telegraph says that the Treasury Select Committee also urges the
Bank of England to investigate the potential consequences of the increase in
debt.
The Times, which also splashes on the report, says that the committee
is to further investigate the disclosures required from private equity
players, the size of their rewards and the financial mechanics behind their
huge deals.
A political dimension to business also leads the Financial Times. Kitty
Ussher, the new City minister, says that London’s status as a leading
financial centre risks being undermined by excessive delays at Heathrow and
the airport’s sprawling layout.
More here
Taking Liberty
Some see opportunity in the credit squeeze. John Malone, the US media mogul,
is considering entering the $23 billion auction for Virgin Media, just as
the leveraged-buyout markets hit private equity, says the Financial Times.
More on Virgin Media here
The chairman of Liberty Global says the group is doing its homework and that
it could join a consortium. He alluded to the financial attractions of
Virgin Media, which has an estimated £12 billion ($24.4 billion) of
accumulated losses that analysts believe could be used to offset tax on
future profit.
But Mr Malone expressed concern about the challenge of competing with BSkyB,
controlled by News Corp. “The bottom line issue is, can anything flourish
under the Death Star?” he says, likening BSkyB to the superweapon in the
Star Wars films.
The auction has a little over a week left to run. Virgin Media has asked for
indicative offers from more than ten private equity firms and cable
companies by August 8.
End game
Barclays' attempt to buy ABN Amro is set to suffer a significant blow on
Monday when the Dutch bank announces that it is withdrawing its
recommendation for the bid, The Telegraph and others report.
More on ABN Amro here
The move - which could see ABN paying a €200 million (£135 million) break fee
to Barclays – puts a rival bid from a consortium led by Royal Bank of
Scotland in pole position.
ABN's supervisory board met at the weekend to consider Barclays's €66 billion
offer, made up mostly of shares, and the consortium's €71 billion bid,
mostly in cash.
Attention is now likely to turn to the Fortis EGM next Monday. The
Belgian-Dutch bank, part of the RBS consortium, faces an uncertain
shareholder vote on its proposed €13 billion rights issue, to be used to
fund its share of the bid.
Nervous wait
Up to £1.2 billion could be wiped off GlaxoSmithKline’s sales next year if
regulators in America on Monday recommend the withdrawal of Avandia, its
controversial diabetes medicine, reports The Times.
More on GSK here
An independent advisory committee to the US Food and Drug Administration is to
discuss the future of the drug, which has been at the centre of controversy
since a report in The New England Journal of Medicine linked it with
a big increase in the risk of heart attacks.
Peter Cartwright, pharmaceuticals analyst at Evolution Securities, described
the possibility of a Vioxx-style withdrawal of the drug as “the nuclear
option ... It’s more likely they will request the introduction of new
warnings and labelling,” he said.
If the independent committee does recommend withdrawal, Mr Cartwright predicts
that GSK would suffer a slide of up to 6 per cent in its pharmaceutical
revenues for 2008.
Dow Jones
Rupert Murdoch is reported to have given the sharply divided Bancroft family
until the close of business in New York today to decide whether to sell him
the Dow Jones company and its prized asset, The Wall Street Journal.
More on Dow Jones here
The New York Times says that Mr Murdoch, chairman and chief executive
of News Corporation, has tired of the Bancrofts' indecision and will walk
away from the deal unless the deadline of 1800 EDT (2300 BST) is met.
The ultimatum came as the 36 Bancroft family members, their lawyers and
financial advisers continued to agonise over the $5 billion offer Mr Murdoch
made more than three months ago.
If the market continues a downward slide when trading opens on Monday, it will
increase pressure on the Bancrofts to sell. A decision not to sell could see
the share price, now at $54.70, nosedive to well under $30.
Mystery man
Rusal, the Russian aluminum giant, is preparing its public debut on
international markets in unconventional style: by maintaining a wall of
silence about the billionaire behind it, says The Wall Street Journal.
More on Rusal here
Oleg Deripaska, a 39-year-old tycoon whose US visa was withdrawn over
questions about his past business dealings, founded Rusal and owns two
thirds of the company. But Mr Deripaska played no part last month in
informal presentations in London, Frankfurt and New York designed to gauge
interest ahead of its planned November listing on the London Stock Exchange.
When it conducts its initial public offering of a stake of as much as 25 per
cent in November, Rusal could raise $7.5 billion, an offering that would be
among the largest IPOs. The Journal says that investors, including F&C
Investments, are closely studying Mr Deripaska's role, as well as lingering
lawsuits.
Separately, The New York Times reports that the owners of Russneft, one
of Russia’s largest private oil companies, are in talks to sell their shares
to Mr Deripaska, who has close ties to the Kremlin.
More here
WHILE YOU WERE AWAY ...
LAST MONDAY: China agreed to buy up to a £6.6 billion (€9.8 billion) share of Barclays,
raising cash for the bank in its pursuit of ABN Amro, the Dutch bank.
More on Barclays here
The world's biggest oilrig leasing company unveiled an agreed cash and
shares offer to buy a smaller rival in a deal that will create a $53 billion
group.
More on Transocean here
TUESDAY: Sports Direct, the sportswear retailer, issued its second
profits warning in three months, wiping 25 per cent off its share price. It
has lost more than £1 billion in market value since listing in February.
More on Sports Direct here
Tony Hayward, BP’s new chief executive, gave warning that Britain’s
biggest company faces more pressure on earnings and cashflow as he promised
to revive the flagging performance of its US operations.
More on BP here
WEDNESDAY: Shell comes under intense pressure to scrap a £5 billion
natural gas project in Iran after a call from a group of leading US pension
funds for energy companies to cut their ties with the state.
More on Shell here
The Treasury promised to legislate to ensure that thousands of family
businesses paid more tax after it lost a seven-year "David and Goliath"
battle in the House of Lords.
More here
THURSDAY: Shares plunged worldwide as investors fled stock markets amid
anxieties that the flood of cheap credit that has fuelled a global boom in
corporate deals is drying up.
More here
Hugh Osmond’s Pearl Assurance group called on Resolution, the
insurer, to halt its £8.6 billion agreed merger with Friends Provident, amid
growing suggestions that shareholders on both sides are opposed to the deal.
More here
FRIDAY: Cadbury Schweppes was forced to delay the £7 billion-plus sale
of its US drinks arm amid steep falls in global equity markets.
More on Cadbury Schweppes here
The European Commission issued formal charges against Intel, the
microchip maker, for allegedly using illegal tactics against its smaller
American rival Advanced Micro Devices.
More on Intel here
MARKETS
FTSE 100 (Friday close): down 36.00, or 0.6%, at 6,215.20
Dow (close): down 208.10, or 1.5%, at 13,265.47
S&P 500 (close): down 23.71, or 1.6%, at 1,458.95
Nasdaq (close): down 37.10, or 1.4%, at 2,562.24
Nikkei (latest): down 124.44, or 0.7%, at 17,159.37
Hang Seng (latest): up 27.66, or 0.1%, at 22,598.07
Sterling (latest): $2.0236
Oil (latest): West Texas crude down 40 cents at $76.62
Gold (latest): up 30 cents at $672.60
ASIA
The region’s shares extended the $2.1 trillion rout in global equities.
More on Asian markets here
Toyota, the biggest carmaker, led declines by companies that rely on US
sales. Mitsubishi UFJ Financial Group, Japan’s biggest lender,
slipped on concerns that the ruling Liberal Democratic Party's loss of its
upper house majority will hold up legislation.
The Morgan Stanley Capital International Asia Pacific Index was down 0.4 per
cent while Japan’s Nikkei had lost 0.7 per cent in intraday trading.
Conversely, China's CSI 300 Index was headed for a record high after China
Life Insurance said that first-half profits had probably more than
doubled from a year ago. Benchmarks also rose in Singapore, Hong Kong and
South Korea, but declined elsewhere.
Paul Larter
paul.larter@thetimes.co.uk
LONDON
The recent sell-off in property stocks was put on hold on Friday as the
fallout from Thursday’s selling frenzy left investors reassessing the
prospects of the sector.
Persimmon put in one of the best large-cap performances, with Barratt
Developments, the rival housebuilder, also showing gains. Both companies
have seen their shares slide since the spring on mounting fears that rising
interest rates will dampen demand for newly built homes.
Property companies saw their falls extended on Tuesday, Wednesday and Thursday
last week, as rising fears of a credit crunch prompted selling across the
market. A sense that fears might have been overdone left Persimmon up 21p at
£10.99 and Barrett up 14.5 at 904.5p on Friday.
However, one analyst noted that the improvement still leaves the shares a long
way short of previous highs. Persimmon topped £14 in May while Barratt
traded close to £13 in February.
Commercial property groups were also back in favour, with Liberty
International, the shopping centre operator, up 12p at £10.38 and
British Land 8p higher at £12.12. Land Securities put on 9p
to £16.28.
The FTSE 100 failed to hold on to early gains, marking a fourth session in
negative territory as the index failed to shake off fears over the corporate
lending and US mortgages markets. The index, which touched 6,315 in early
trading, closed down 36.0 points at 6,215.2. The FTSE 250 index closed down
48.9 points at 10,984.
Cyclical stocks came in for more selling, with miners heading the list of
fallers. Anglo American closed down 114p at £17.39 ahead of its
interim results, due out this Friday. Vedanta Resources lost 66p to
£16.18 and Antofagasta was 25p weaker at 674p. Kazakhmys
fell 36p to £12.26. BHP Billiton lost 39p at £13.61 while Rio
Tinto was down 91p at £33.38.
Rolls-Royce, often considered a cyclical stock, recovered 12p to 508p
in the wake of its interim numbers last week, as Credit Suisse highlighted
its fading exposure to cyclical factors. Analysts at the Swiss broker
pointed out that revenues from maintenance contracts and other after-market
activities, rather than product sales, now dominate the group’s results.
That made Rolls-Royce “much less cyclical” than it otherwise would be.
Concerns over the dollar-sterling exchange rate have dragged on the shares,
but analysts said yesterday that forecasts already reflect an exchange rate
of $2.05 to the pound. Credit Suisse upgraded its rating from “neutral” to
“outperform” and raised its target price from 570p to 580p.
Mitchells & Butlers, the pub and restaurant operator, fell by 3p to
790p amid fears that the credit crunch may have delayed its proposed £4.5
billion property joint venture with Robert Tchenguiz’s R20 vehicle.
Resolution gained 18p to 649.5p after Pearl Assurance, which has
indicated a desire to discuss a merger, raised its stake to 15.85 per cent.
Friends Provident, which had agreed a merger deal with Resolution, lost 1.5p
to 180p.
Croda International rose 21.5p to 685p after Morgan Stanley raised its
target price on the chemicals group to 800p from 750p. The US broker made
the change after first-half profits, reported earlier this week, beat
forecasts.
Paragon Group of Companies, the buy-to-let mortgages specialist, rose
14.25p to 434.5p after Standard & Poor’s, the credit-rating agency
reiterated its AAA rating
Renewable Energy Holdings, the AIM-listed renewable energy technologies
group, gained 5p to 55p after entering into a collaboration agreement with
France’s EDF.
Cenes Pharmaceuticals lost 0.7p to 3.55p after announcing plans to
place £6.1 million of shares at 105p each. The proceeds will be used to
prepare for Phase III studies of its M6G drug, a pain relief treatment.
Brokers
News that an unnamed suitor is in advanced takeover talks with Xansa
sent shares in the outsourcing group soaring, on speculation that a formal
approach could value the company at as much as 120p a share.
Analysts speculated that the group, long seen as a potential takeover target,
could be talking to one of the large Indian outsourcers. Tata Consultancy
Services, Infosys and Wipro are all thought to be keen to boost the size of
their back-office outsourcing operations. Xansa is on course to employ 7,000
people in India by the end of next year but also has an operation in the UK,
allowing any buyer to complete work in both countries, as clients
increasingly require.
Milan Radia, an analyst at Jefferies, said a 120p sale price was “highly
justifiable”, underpinned by Xansa’s UK operations and its “proven ability
to win higher-end contracts”.
International groups including CapGemini and Accenture could also be
interested. Xansa is in the process of appointing a new chief executive. The
shares closed up 27.5p at 104p.
Joe Bolger
joe.bolger@thetimes.co.uk
Keep up with the business news and comment as it happens at www.timesonline.co.uk/business
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