Perennial bid target boosted as Emerson said to be interested in controls business
Invensys has been a supposed bid target for months if not years, but the speculation has resurfaced to drive its shares up by more than a quarter.
America’s GE, Germany’s Siemens and China’s CSR have been suggested as possible bidders in the past, but the latest speculation indicated interest from US group Emerson Electric. The rumours suggested Emerson was mainly interested in the company’s controls business and not the rail division, but would be willing to buy the whole lot to achieve its aims. That was enough to see Invensys jump 54p to 257p, valuing the company at more than £2bn.
But as Singer Capital Markets pointed out recently following a meeting with the company:
The pension deficit remains a big if not insurmountable obstacle for a bid.
Overall the market moved higher on hopes that central banks would unveil measures to stimulate the sluggish global economy, beginning with the US Federal Reserve after its latest meeting. Despite confusion about whether Europe had agreed on using its bailout funds for a programme to buy up bonds from struggling members of the eurozone, the mood was cautiously optimistic. News that Greece had finally formed a government helped sentiment, although renegotiation of its bailout terms could yet prove a stumbling block to any economic stability.
By the close the FTSE 100 was 35.98 points better at 5622.29.
Aviva added 12.5p to 279.1p on reports the European Union was considering phasing in new capital rules for life insurers over seven years, easing the burden on the sector.
Sage climbed 14p to 267.5p, the biggest riser in the leading index, as the accountancy software group unveiled a move into Brazil with the £125m acquisition of small business specialist Folhamatic. Gareth Evans at Canaccord Genuity said:
This deal is interesting – in some ways it is a return to the “good old days” of Sage’s acquisitive growth. In others, it is quite different – paying a reasonably full price for a business already operating at very strong margins. Traditionally Sage acquired smaller players, operating at relatively poor margins, and benefited in subsequent years by migrating the acquired business towards Sage-group methodologies and margins.
This deal is therefore about acquiring a platform for revenue growth, rather than post-acquisition margin improvement. Sage is buying a smaller lookalike, which should generate revenue growth given the Brazilian economic outlook.
Elsewhere ITV continued to gain ground on bid talk. The broadcaster was also boosted by news of a tender offer for up to £250m of its bonds, which would lower its interest payments. Traders said this could also aid a possible takeover of the business by private equity, the rumour that did the rounds on Tuesday.
ITV’s shares closed 2.25p higher at 76.5p, albeit well short of the speculated 150p a share bid. Ian Whittaker at Liberum Capital said the takeover tale had been heard many times before, but pointed out that one of the speculated parties, KKR, is the co-controller of Germany’s ProSieben. He added:
Given ITV is heavily cash positive (around £280m by the year end), this would be attractive to a private equity buyer especially given ITV’s recent £250m bond buyback, which lessens the bond buyback complications inherent in any takeover.
As he said, ITV has been the subject of many takeover tales in recent times, with even Apple mentioned as a potential buyer at one point.
On the bond move Alex DeGroote at Panmure Gordon said:
Very sensible treasury action. ITV has around £1bn cash on its balance sheet. Hopefully this will persuade the (stock) market that ITV is more than just a play on advertising.
The market is plainly obsessed by advertising momentum. This may have deteriorated in the third quarter, following a very strong second quarter. It remains volatile. At the same time, the Premier League auction (sports rights) highlighted the value of content. ITV is major content player, with more than 20% of EBITDA coming from Studios now.
Among the biggest fallers were the water companies, but only because they went ex-dividend. Severn Trent lost 115p to £16.34 after shareholders lost the right to a 42p dividend and a 63p special payment. United Utilities - also ex-div – fell 13.5p to 656p.
Home Retail lost 4.85p to 87p as HSBC moved from overweight to neutral in the wake of the Argos and Homebase owner’s update on Tuesday, and cut its target price from 110p to 100p. The bank said:
[It was a] better-than-expected first quarter outturn but limited visibility is likely to restrict further upside in the short-term.
A negative outlook from US consumer group Procter & Gamble hit rivals, with Unilever down 13p at £20.62 and Reckitt Benckiser 30p lower at £33.67.
Lower down the market Ithaca Energy, the North Sea oil explorer, rose 4.5p to 116p on speculation that Cairn Energy, Dana Petroleum purchaser Korea National Oil Corporation or Soco International could be interested in the North Sea oil producer.
Finally Pinnacle Technology added more than 1% to 0.375p after it was selected to deliver the broadcast technology for the BBC’s forthcoming Big Weekend in Hackney. This will be the largest ever event broadcast via internet technology instead of traditional telecoms. Pinnacle was recently involved in the outside broadcasting of the Queen’s Jubilee and are providing the broadcasting capabilities for international broadcasts at the Olympics.
The mergers and acquisitions trend means the FT30 index of 1952 holds just two names in the FTSE 100 today
The shipbuilder Swan Hunter, Leyland and Morris Motors carmakers and an array of textile firms dominated the stock market in the year the Queen came to the throne, when the postwar economy was a quarter of its size now and yet to have a single bank banking sector that warranted an entry in the leading stock market index of the day.
That index, the FT30, was created in 1935 by Maurice Green and Richard Clarke, respectively editor and chief leader writer of the Financial News (which later merged with the FT). Clarke called it a “truly modern and sensitive industrial ordinary share index” having set out to choose stocks that were not necessarily the biggest companies, but among the most actively traded and those that reflected the shape of UK industry. Clarke said: “It is likely to be representative for some time to come.” Clarke said.
The only names in the index of 60 years ago and today are Guest Keen & Nettlefolds (GKN) – which began in iron production and is now in aerospace and motor engineering – and the sugar firm Tate & Lyle. But while names in the FT30 index of 1952 such as Dunlop Rubber and Hawker Siddeley might be thought to belong to the past, they can be traced forward to a firm, Invensys, that still exists. Until last year it was in the FTSE 100 – which was not introduced until 1984 – but it was dropped for the inclusion of the international trading group Glencore.
Tube Investments has a similar story, a steel tube maker later to become known as TI. In the 1950s and 60s it included several bicycle manufacturers makers such as Raleigh. In 2000 it merged with Smiths, which is also in the index 60 years later.
The merger and acquisition theme continues as you read down the list of names in the FT30 index of 60 years ago. Two of the textile firms in the original index, J&P Coats and Paton & Baldwins, merged and by the 1980s had become part of the Coats Viyella empire, which was later taken over by Guinness Peat. Another engineer, Vickers, eventually ended up inside Rolls-Royce.
Lancashire Cotton, an amalgam of businesses in the troubled spinning industry, was a notable entry 60 years ago. It was bought by Courtaulds just over 10 years later. Courtaulds itself had a place in the FT30 and in the 1980s bought another constituent of 1952, Pinchin Johnson & Associates. Courtaulds eventually came to symbolise the loss of Britain’s status as a manufacturer, with its chemicals arm being sold off and its textile business – once a major supplier to Marks & Spencer – being sold off to US and then Hong Kong companies.
The now-bust FW Woolworth’s inclusion shows its once-firmly established place in national life. At the other end of the shopping scale was another national institution, Harrods. The upmarket department store in London’s Knightsbridge has had many incarnations in the 60 years since then, being taken over by House of Fraser in 1959, embroiled in a row with Lonrho, then the 25 years under Mohamed Al Fayed until its sale in 2010 to Middle Eastern investment funds.
Some of the 1952 constituents are more easily recognised under their newer names. Associated Portland Cement became Blue Circle in the 1970s before Lafarge of France took it over in 2001.
Electric & Musical Industries was quickly shortened to EMI, taken over by Thorn in 1979 and demerged 15 years later. Guy Hands’ private equity business Terra Firma later got burnt after buying the music empire just as the credit crunch took hold in 2007.
Turner & Newall, the first UK industrial asbestos weaver, also met a difficult end after being sold to Federal Mogul, which collapsed under the weight of asbestos claims and led to the T&N pensions scandal.
Obvious absentees from the index when the queen began her reign are banks, which is perhaps not surprising given the restrictions on the financial industry at the time. The Council of Mortgage Lenders points out that in the early 1950s, almost all lending was conducted by about 800 small, locally based building societies which operated under centrally fixed recommended mortgage rates.
Software group reports disappointing revenue growth while Greek and Spanish concerns unnerve investors
As the market slumped for the third day running on continuing eurozone woes, the leading faller was software group Sage.
Recently tipped as a possible bid target, its shares dropped 15.2p to 263p – a 5.5% decline – following disappointing first half revenue growth of just 2%. It said the problems in Europe were holding back its progress in the region, but was encouraged by its underlying performance. George O’Connor at Panmure Gordon said:
Interim results feature 2% revenue growth down from 5% year on year, and lower than our bottom end estimate; however profit was better than we had expected. As we expected the numbers were dull and the operational narrative on Europe was downbeat – Sage talks about “considerable headwinds”. Still no sign of any big bold move…and there is plenty of fodder in here for the bears. We trim our target price from 292p to 291p [and] retain our hold.
Paul Morland at Peel Hunt was more negative, issuing a sell note on the business:
Sage is a good business, but its years of high growth will be hard to recapture, and it has nothing to do with its cash but return it to shareholders. As its mix continues to shift away from software and towards subscriptions, visibility will improve, but at the expense of growth and profitability.
Overall the FTSE 100 fell another 24.50 points to 5530.05 as the uncertainty following the weekend election in Greece continued. Comments from Greek party leader Alexis Tsipras – who currently holds the mandate to try and form a government – that the bailout agreement reached with the EU was null and void prompted talk the country could default on its debts or even leave the euro, while there was talk it may not receive its next tranche of funds. But there was also a growing concern that no party would be able to form a government, prompting another polling day next month. It was not just Greece which unsettled investors. The prospect of Spanish bank rescues this week – on Friday if not earlier – and talk of downgrades from ratings agencies also contributed to the market’s decline.
So banks came under pressure, with Lloyds Banking Group down 1.165p at 29.91p and Royal Bank of Scotland 0.83p lower at 22.63p.
A number of companies went ex-dividend, including BP, down 11p at 404p, and G4S, 6.9p lower at 262.8p, and this also weighed on the market.
Amid a host of company results, pumps maker Weir lost 82p to £15.14 after a disappointing update.
The company had been under pressure recently on worries about its growth prospects, in both the oil industry and the mining sector following news that Rio Tinto and BHP Billiton were cutting back capital expenditure. In an update Weir has said it would meet 2012 expectations with mining showing strong trading in fact (at the moment), but orders in the oil and gas sector plunging 26% in the first quarter. Peel Hunt’s Thomas Rands said:
The very weak oil and gas order input but stronger minerals sales cause management to maintain full-year guidance, but the cautious tones and recent weak mining capex newsflow give us concerns.
But ITV added 1.75p to 82.5p and J Sainsbury edged up 4p to 305.3p as their updates pleased investors.
Tullow Oil dropped 73p to £14.44 as it announced plans to spend up to $750m jointly with its partners on drilling in Uganda this year.
Among the mid-caps, Exillon Energy, a Russia focused oil group, lost 10.6p to 114.4p after HSBC cut its price target from 300p to 265p in the wake of a trading update on Tuesday. The bank said: The interim management statement showed rising production but below our forecasts, leading us to reduce our earnings and asset value estimates.
Invensys lost some of its recent takeover froth, down 13.2p at 200p.
Finally Ingenious Media jumped 28% to 16p after it announced the sale for £13.93m of its investment in Cream, owner of the Creamfields festival and night clubs in the UK and Ibiza. The company said it planned to distribute the proceeds to shareholders.