Catlin seals XL takeover deal
THE insurance sector was under the spotlight after Catlin announced a recommended cash and share offer from XL, valuing the group at £2.8bn – a 23pc premium to Catlin’s closing share price on December 16 – and sparking hopes of a wave of consolidation in the industry.
Given the healthy premium offered for the business, the fact that it is clearly founder Stephen Catlin’s preferred option and comes strongly recommended by the board Eamonn Flanaghan at Shore Capital said he doesn’t envisage a counter bid emerging.
‘Hostile bids in this industry are as rare as hen’s teeth,’ he said.
The rationale f or the deal, which is expected to complete by 2015, include cost synergies of over $200m a year from the end of 2017.
Founded in 1984, the speciality insurance and reinsurance group expects to benefit from the increased diversification of business brought by the combined group, as well as economies of scale which will make the combined XL Catlin the eighth largest global reinsurer.
Westhouse analyst Joanna Parsons said the deal sorts out potential succession issues for Catlin as to who would take over and ‘allows (Catlin) to exit with his head held high, having achieved a fair price for his investors’. Catlin shares ended the session just under 6pc higher at 700p. The news ignited other companies in the sector, with blue chip Friends Life Group 6.6p firmer at 371.7p, Aviva 7.2p higher at 490.4p and Admiral Group up 16p at 1353p.
The bid ‘highlights the attractions of Lloyds for external players and increases the scarcity value for the remaining companies,’ said Flanaghan.
‘In addition, scale is clearly not the obstacle we might have envisaged, whilst the extent of dilution involved for XL’s shareholders has clearly not stopped management from proceeding with the offer and possibly incurring the wrath of investors.’
The Footsie ended the first full week of the year on a negative footing, down 68.82 at 6501.14, with Wall Street also faltering, slipping back by 175.58 points to 17,732.29 in early trading.
The blue-chip index was dragged down by sharp falls in the housebuilders after investment bank Jefferies downgraded the entire residential property sector citing negative newsflow on mortgage approvals, housing transactions, lower GDP growth and weak house price data – all of which is set to weaken the sector in the first quarter, while the general election will see problems persist into the second quarter, Jefferies said. The report pushed shares in Taylor Wimpey to the top of the list of fallers, down almost 5.4pc at 125.7p, followed by Persimmon, 80p off at 1459p.
On the second line, Zoopla was knocked by 10.2p to 171.3p, while Bellway shed 99p to 1809p, Rightmove was 98p lighter at 2157p, Berkeley was over 4pc off at 2345p and Crest
Nicholson shed 15.9p to 368.9p. Food retailers continued their torrid performance led by Morrisons – down 8.4p to 176.3p – ahead of a trading update on the key Christmas sales period, due next week. Chief executive Dalton Phillips will be under pressure to show investors that his turnaround plan is starting to bear fruit in a sector that has so far reported bruising numbers. Sains
bury’s lost 10.6p to 241.8p. But Ashtead group was in hot demand for most of the session reaching a high of 1174p but easing off by the close of trade after it reported forecast-busting second quarter results. It closed 8p up at 1139p.
The impact of the falling price of oil on the industrial equipment hire group is likely to be fairly muted given that only 10pc of reve- nues are linked to the industry, Credit Suisse analysts reckon. But they cautioned that energy companies based in its biggest state, Texas, could delay or cancel exploration projects, possibly causing redundancies and re-evalution of their needs for office space – ‘ultimately leading to a slowdown in broader regional construction, which could limit Ashstead’s ability to redeploy kit and lead to pressure on rental yields if overcapacity opens up in the market’.
Still, a falling oil price is seen as a bonus to a company that spends around $100 a year on fuel cost.
Credit Suisse raised revenue and earnings per share estimates for the group by 2pc for this year but kept next year’s projections unchanged given the threat to earnings posed by the declining oil price. The shares closed up 8p at 1,139p.
Laird Group was the sharpest FTSE 250 faller, losing more than 9pc of its value to 301.6p, despite a trading update in which the electronic components maker said it is on track to meet full year expectations.
SHARES in Shanta Gold fell 2.6c to 9.12p after the East African production and exploration group announced that a fire had broken out in one of its gold plants. The fire took place in the screening section of the New Luika Gold mine and two people suffered minor injuries, the group said. The mine, in south-west Tanzania, is forecast to produce 80,000-83,000 ounces of gold in 2014.