Merger mania grips markets
BOOM! Global merger and acquisition activity increased 38pc to £1.4trillion in the first half of 2015 and shows no signs of abating.
But while gobsmacked dealers heard about yet another multi-billion pounder as US health insurers Aetna and Humana announced plans to climb into bed together in a £22bn deal, there were growing concerns that the proposed Vedanta-Cairn merger could be kicked into touch by minority shareholders. Vedanta Resources was sold down to 456.5p before closing 35.2p or 7pc lower at 472.8p. Last July’s peak was 1147p.
Indian mining and energy group Vedanta Ltd last month made an offer to buy out minority shareholders in cash-rich oil unit Cairn India, in a deal that would help parent Vedanta Resources repay hefty debts.
Shareholders in Cairn India, India’s top private sector oil producer, will get one share in Vedanta for every share held. Investors will also get one redeemable preference share in Vedanta Ltd with a face value of ten rupees.
The deal is expected to be concluded in the first quarter of 2016 and is the first major structural change under Vedanta Ltd chief executive Tom Albanese, the former Rio Tinto boss appointed last year.
Vedanta’s billionaire founder and chairman Anil Agarwal acquired a controlling stake in Cairn India for £2.9bn in 2011.
Under new Indian takeover rules the merger needs to be backed by a majority of the minority shareholders who vote. Stateowned insurer Life Insurance Corporation of India (LIC) owns 9.6pc, while Cairn Energy (3.4p off at 165.2p) owns 9.8pc.
Reports suggest that LIC could well toe the government line that Cairn is a strategic player in the petroleum sector and should not be merged with Vedanta. Meanwhile, Cairn Energy apparently did not agree outright to the merger and could be looking for a better deal. Any rejection will hinder Vedanta’s access to Cairn India’s £1.8bn cash as Albanese seeks to lower debt. In May, Vedanta Resources posted a full-year loss after a sharp drop in crude prices precipitated a £2.9bn write-down related to its Indian oil and gas business. Earlier this year Cairn India received a demand for £2.1bn in taxes from Indian authorities for allegedly failing to deduct withholding tax on capital gains.
Widespread forecasts that a conclusive ‘No’ vote that won the Greek referendum would lead to a share price bloodbath as it increases the chances of a Greece exit from the eurozone were thankfully proved wrong.
The Footsie, which had already fallen a hefty 6pc in June on fears of such a scenario, opened almost 80 points lower but soon ral- lied on news of Greek finance minister Yanis Varoufakis’ resignation. Dealers took that as a positive gesture from the Greek government given his unpopularity with creditors. It closed 50.1 points down at 6,535.68 and 8.2pc below April 27’s all-time high. The FTSE 250 lost 170.18 points to 17,443.28.
Battered bulls still believe there could be a positive ending to the Greek tragedy. The next hurdle for Athens is the €3.6bn payment to the European Central Bank on July 20.
Neil Mackinnon, economist at VTB Capital, said: ‘Much depends on the political will on both sides in avoiding a Greek economic implosion and the unintended consequences for the EU of a Grexit.
‘The bottom line is that Greek PM Alexis Tsipras now has all the bargaining cards after securing a 61pc vote.’
Financials led the retreat with asset managers worried about fund outflows on the back of a sharp deterioration in Greece.
Schroders slumped 113p to 3061p, Hargreaves Lansdown 26p off at 1109p and Man Group 5.3p cheaper at 147p.
Royal Bank of Scotland declined 12.8p to 346.5p after a Reuters report that the Government is planning to sell half its stake, worth £16bn, within two years of a possible first sale in September. Marks & Spencer resisted the malaise, climbing 8.5p to 547p ahead of today’s AGM and news of firstquarter sales. Boss Marc Bolland is expected to report sales of general merchandise at shops open over a year in a range of flat to down 2.5pc.
M&S announced it is expanding its free ‘click & collect’ service to more than 100 of its Simply Food franchise stores. It comes after rival John Lewis’s decision to start charging customers.
Royal Mail posted a 5.5p gain at 510.5p in response to a Goldman Sachs ‘buy’ recommendation and 12 month price target of 610p ahead of the first-quarter trading update on July 21. Thomas Cook shed 6.3p to 125.6p following reports that thousands of Britons were giving Greek holidays the barge pole treatment amid growing fears about the country’s economy.
Newmark Security edged up 0.12p to 3.15p after its wholly owned subsidiary, Safetell Ltd, secured the renewal of a £2.5m service and maintenance contract for a large UK financial institution.
÷ BILLINGTON jumped nearly 19pc to a peak of 262.5p after forecasting first-half results will be significantly ahead of current market forecasts. The firm, which provides structural steel and safety equipment to the construction industry, said the main driver of the 2015 upgrade is margin progression driven by increased efficiencies and a number of favourable contract settlements.