Markets live chat transcript for the chat ending at 11:46 on 15 Jan 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live, the live daily market commentary from the Alphaville team.
PM: I’m joined by Neil Hume from the FT’s London equities team
NH: morning
PM: We are going to go straight in with Countrywide this morning.
PM: Give us the breaking news Neil
NH: yep the shareholder meeting on the 3i bid had been adjourned so that there can be more talks with shareholders
NH: this is despite news that 38% of shareholders have voted by proxy against the deal
NH: given that the deal needs 75% acceptances that is not good
PM: Here’s the statement …
PM: At the request of 3i, Christopher Sporborg, Chairman of Countrywide, will seek an adjournment of the Court Meeting and the EGM to be held this morning in relation to Charlie Holdco 4\‘s offer for Countrywide.
3i has indicated that it wishes to hold further consultations with Countrywide\’s significant Shareholders. Given the importance of ensuring that the outcome of
the EGM and the Court Meeting fairly reflects the wishes of Shareholders, the
Independent Directors have agreed to propose motions at the Court Meeting and the EGM for their respective adjournments.
PM: The proxy votes received in relation to the Court Meeting by 10.30am on Saturday
13 January 2007, being the last time and date by which proxies needed to be
received in order to be valid at today\’s Court Meeting, were as follows:
Court Meeting of holders of Independent Scheme Shares
Total proxy votes received For Against
Number Independent Scheme Number Number
Shares (and %) (and %)
represented
Totals by
proxy 91,156,722 53.35% 56,246,031 34,910,691
(61.70%) (38.30%)
PM: The total number of Shareholders voting by proxy was 1,392. Of these, 1,230
voted for the Proposals, representing 88.36% of the total, and 162 voted against
the Proposals, representing 11.64% of the total.
It is important to note that the above numbers relate to proxy votes received by
post and do not take into account any votes which may be cast at the Court
Meeting by Independent Scheme Shareholders and/or their proxies (or their duly
appointed corporate representatives) attending the Court Meeting in person and
voting at it. It should also be noted that Independent Scheme Shareholders who
have voted by proxy are in any case able to change their vote by attending and
voting at the Court Meeting, or any adjournment thereof, in person.
It is expected that the reconvened meetings will be held as soon as practicable,
and in any event in the next two to three weeks, subject to the Court Meeting
and EGM consenting to an adjournment; formal notification of the times and dates
for the reconvened meetings will be despatched to Shareholders as soon as
possible and in any event no less than seven days prior to the date appointed
for the reconvened meetings.
PM: What’s been the marekt’s respone so far?
NH: the shares up 11.5p at 529.5p
NH: that’s around 40p below the implied price of the offer i think
PM: So what does this reflect? __ Bear closing??
NH: yep
NH: 3i have boxed themselves in on this one
PM: Explain
NH: they put out a statement a week or so ago saying that there offer was full and final and would not be increased
PM: So 3i are going to “talk” to shareholders. Thought they would have been doing that already ….
NH: i think the rebels have made it pretty clear what they think of the offer. not sure what a little chat is going to do
NH: unless they try and scare them by saying the property market looks vulnerable to a fall in the wake of last week’s rate decision
PM: Or that a third of its business comes from conveyance stuff — taht could be v vulnerable to housing market slow down
NH: we have another piece of breaking news, though note quite on the scale of Countrywide
PM: Just seen the red flash
PM: Sports Cafe ….
NH: offer talks terminated
NH: this seems to have surprised a few people as the shares are down 7p to 18p
PM: Ouch!
NH: they have also tacked a profit warning into the statement as well as a line about seeking new sources of finance
PM: This is the business that last week seemed to have difficulty counting the takings at a couple of dozen tills at its bars
NH: or as the company put it: “the quantum of its trading deviation”.
PM: Well we seen some deviation in the share price today
NH: and in profits
NH: company expects to make an operating loss in 2006 similar to that of 2005
PM: 
NH: on financing alternatives the view in the market is that Sports Cafe is trying to raise around £4m at 15p.
PM: Untested info — but sounds v believable. Given this morning’s fall they might struggle with that.
PM: Sorry to jump around but a 3i statement has just come out on Countrywide …
PM: Clear majority of votes cast in favour of the deal … so they say
PM: Offer very attractive …..
PM: Continue discussions with shareholders on merits of offer ….
PM: Right — let’s move on. What is Smith’s doing after this morning’s big news
NH: up 126p, or 12.8%, to £11.11
PM: This is following news that the group is selling its aerospace division to GE. Also forming a joint venture with GE covering bomb detection technology
NH: interesting news. set me thinking about a recent interview with the boss of Smiths in the FT
PM: Week before last – with James Boxell
NH: the Ceo’s name is Keith Butler-Wheelhouse.
PM: Go, on …paste
NH: The success of the detection business, which has grown organically by 15 per cent each year since its creation, has led some to suggest it could be sold or spun off, with JPMorgan estimating a value of Pounds 1.5bn.
Keith Butler-Wheelhouse, chief executive at Smiths, says the unit “does have suitors, but the only reason you would spin it off is if someone could see more value than us”.
Some analysts and bankers speculate other parts of the business could be sold, such as a slightly misfiring aerospace business or the medical devices unit.
Mr Butler-Wheelhouse insists he is “very much not a seller” at the moment, though he is “always shaking the bag”.
PM: So how does that work? “Very much not the seller”
NH: ah, but he is always “shaking the bag”
PM: So there he’s been over the past 10 days – not looking to sell any of Smiths Group ….
PM: But he’s just shaking the bag, casual like.
PM: Shake shake, shake shake
NH: And half the business falls out!
PM: 
PM: Oh, look, he says to the City. I wasn’t looking to sell any of Smith. But I was just shaking the bag and suddenly GE pops up and says we’ll give you two and half billion for that aerospace bit.
NH: And all in the last 10 days
NH: they work quickly round at Smiths
PM: Fascinating. Gives us such insight into the break-neck speed at which modern business operates.
PM: Seen anyone else shaking their bag recently ???
NH: always on the lookout
NH: There’s been a whole lot of shaking goin on
PM: Careful there, you’re sounding like Shakkin Stevens
NH: Who
PM: Sorry. Showing my age again
NH: did you get the note on Smiths that I sent you??
PM: Ah yes, just pull it up.
PM: Evolution ….
NH: yes slapped a buy rating on it and upped price target to £11.71. Also predicting further deals in the sector
PM: Here’s some of the detail ….
PM: Today\’s announcement is the catalyst to unlocking the substantial value within the Smiths portfolio. On the price GE are paying for aerospace, 15.6x EBIT 7/07, our sum of the parts comes in at 1171p and we are upping our price target to this level from 1058p.
There are two factors to consider – 1) the balance of Smiths which also includes the detection jv with GE will be doing EBIT of GBP419m on sales of GBP2470m, a margin of 17%, and underlying eps growth of at least 10%. On this basis, the stock can trade at 1170p plus which puts it on 16x.
2) the knock on effect for the aerospace and capital goods sectors in terms of these global niche value added stocks being vulnerable to consolidation – Cobham and Meggitt are the obvious stand outs but note also the value implications for GKN\’s aerospace business and Melrose as it sells McKechnie Aerospace
PM: Let’s have a look at the markets generally
NH: Not a bad performance so far this morning
NH: FTSE 100 up 28.1 points at 6,267.1
NH: Lifted by a strong performance from Asian markets overnight and a decent showing from the US on Friday. The Nasdaq closed at 6-year high, while the closed near the highs of its session
NH: In Hong Kong overnight, the Hang Seng ended 2.3% stronger – its biggest one day percentage jump in three months. In Japan, the Nikkei gained 0.9% at 17,209.92.
NH: However, volumes are pretty thin out there with US investors away for the Martin Luther King holiday.
PM: Like their memorial days in the US
NH: yeah we had one for President Ford not long ago
NH: but i don’t seem to remeber there being a public holiday when Regan died
PM: Dunno
PM: Anyway — we’re open. What other stories have we got this morning
NH: the usual bid rumours are doing the rounds
PM: Who’s shaking their bag?
PM: Or having it shook for them
NH: Home Retail Group up 1.9% to 425p on talk of a bid from Blackstone and KKR
NH: InterCon Hotel Group up 1.4 % to £12.48 on rumours of a £15-a-share from Starwood Capital
NH: Biffa, the waste management company, up 5% to 346p on talk of a bid from France’s Sita
PM: Goodness. Tongues have been busy
NH: they have been wagging furiously this morning
NH: we also have some fresh RAW
PM: This is RAW — as in untested market info
PM: 
PM: Go for it ….
NH: Halfords are up 10.75p to 363p on talk of a bid
PM: Rumours been swirling for a couple of weeks now on this one, no?
NH: they have
NH: the main name in the frame seems to be a Japanese company called Autobacs Seven
NH: they have a 5% stake in the company and a joint venture arrangement
PM: So are they the bidder?
NH: not sure
NH: sources close to the company said that Autobacs had passed on the opportunity to buy more stock when CVC Capital Partners placed its remaining 7.5% stake just before Xmas
PM: Sources close to the company ….. someone who looks like this: 
NH: yes
PM: So could private equity be stalking Halfords?
NH: possible
NH: But if there is a bid the company do no know about it
PM: What makes you say that?
NH: Halfords announced on Friday that they had acquired 160,000 shares for cancellation
PM: Not the sort of thing a company does if it is in takeover talks
NH: Eh, no. It would be illegal
NH: Anyway the shares are currently up 3% at 363p
NH: the other RAW story involves Scottish & Southern Energy
NH: All a bit vague at the moment but rumours of interest from an infrastructure fund
PM: How are the shares performing?
NH: quite well – up nearly 2% at £15.34
NH: Hang on a minute a contact has just e-mailed
PM: Who is this?
NH: number
PM: What’s he saying?
NH: To point out that a few days ago there was talk of Gazprom taking a stake in Euopean utility company
PM: I missed that story
PM: Sounds a bit flakey
NH: True, but it has got the shares moving today
PM: What else …..
PM: Tell me about BP — after Friday’s late news. What are the sharees doing this morning?
NH: shares up 1.5p to 548p
PM: Are people starting to speculate about what the new man will do
NH: that’s Tony Hayward
NH: One conclusion folk have been drawing is that promoting the head of E&P to the top job means the downstream business could be demerged
PM: Hmm
NH: There is also a fair bit of conjecture as to what might come out of next month’s strategy update
PM: What has been the reaction among BP watchers?
NH: surprisingly muted, unlike traders
NH: they reckon Mr Hayward will change little
NH: look at this from Sanford Benstein
PM: Go on
NH: the company is unlikely now to
embark on any new exciting strategic path that will excite investors, as it has to put its house in order
first, and focus on operational issues, as well as realistic and achievable targets and forecasts.
• Thus we believe it is too early to announce a BP recovery story as some commentators will, as there is
much to change, and much to do. Luckily most of these changes will be visible to investors over the
coming six months if they take place, so that they can decide for themselves if BP is actually on the road
to recovery, and when is the best time to invest in the company. We believe that it is too early to be sure
that a recovery is imminent, and with much bad news-flow due over the coming weeks that will drag up
the issues of the last two years, any short term rally in the stock may be short lived, and we maintain a
market-weight rating and a target price of £5.75/$65.
PM: That’s quite a bearish stance
NH: Citigroup are also bearish
NH: Uncertain times — it is hard to see BP outperforming until Hayward defines his
vision for BP this summer and the evidence of operational improvements
becomes manifest, which is unlikely until H207. The risk is that for the next
quarter BP is “dead money”, although BP will be meeting its top 100
shareholders after its February 6th results.
ƒæ Keeping the Faith — Nevertheless, our fundamental opinion of the company has
not changed; BP has an advantaged set of growth assets, a compelling valuation
and a track record of sector leading distributions. We expect these elements to
endure this management change. We are therefore maintaining our Buy (1L)
rating and 640p price target.
PM: Actually, on this BP stuff and Browne’s departure …..
PM: You know its all absolute rubbish – all these suggestions that he was forced into an early retirement ahead of this critical safety report from James Baker.
PM: Absolute rubbish
NH: how so?
PM: The reason for his departure is utterly prosaic
NH: ????????????
PM: The clue is IN THE TIMING
NH: go on
PM: It’s the SMOKING BAN
NH: eh, smoking?
PM: Yep. Browne’s off in July – and what happens in July??
PM: Smoking gets banned in Britain in all public places, that what happens
NH: oh, come on
PM: No, im not kidding. Without a smoking room or being able to smoke in his office, Browne’s not going to be hanging round on the pavement on St James, having a quick gasper
NH: That would be funny
PM: He’s a serious smoker – cigars. Dedicated
NH: As much as you.
PM: Yep. He’s never been photographed with a cigar in his mouth, but he has one lit all day long.
PM: There was a cover of Time Magazine that had him chomping on a Cohiba (or whatever the American chomp on) but it was a montage. I tried once to get him snapped smoking but he just wouldn’t have it.
NH: Hmmm. I’m almost convinced
NH: And I can almost see the headlines ….
NH: “Smoking ban triggers executive exodus”
NH: “Bosses go in puff of smoke”
PM: Nice tabloid touch
NH: So who else is going to flee British boardrooms in the wake of the nicotine clampdown.
PM: Well, the key here is to think about how smoking – well, nicotine deprivation – effects people.
NH: Go on, enlighten me.
PM: Well, if you are an addict you find it difficult to concentrate without nicotine in your blood. Your head spins. You cant think straight. You believe that nicotine turbo charges your brain – that it brings creativity.
NH: All in the mind
PM: Sure, but it feels real enough, cos it’s a nasty little drug
NH: And ??
PM: Well look at Michael Grade
NH: Just settling in at ITV
PM: Yeah, just settling in, getting his plans together for revitalizing ITV – the sort of job he’ll be doing while chomping on a cigar.
NH: And then …?
PM: Bang, the ban will hit him.
PM: The creative ideas will dry up.
PM: Management will go to pot.
NH: That’s right. If I was Apax, Greg Dyke or any other potential bidder, I would be timing my approach for the third week of July.
PM: Dead right — thanks Pedant-in-chief
PM: Anyway — that’s it for today
NH: hang on we have yet more breaking news
PM: Oh — go on
NH: british airways down 10p to 541p
NH: cabin crew have voted for industrial action over pensions
PM: Oh dear. BA and its unions .. .never ending strife
NH: one reason why this BA private equity rumours seems stupid
PM: Thanks Mr Gibson — for your comment
NH: did i read recently that if Japan Tobacco take over Gallaher they will move the HQ to Switzerland?
PM: Of course — first of a steady flow, if fear
NH: we have a lot of creative minds here at the FT. Where should we relocate to?
PM: Hmmm — Turkey is probably the best bet
PM: Or china
NH: switzerland is out – too cold and expensive
PM: Far too many rules. How about Monaco — does the french ban extend to there?
NH: dunno.
PM: Right we’ll find that out for tomorrow. We’re signing. Thanks for joining Markets Live today. Back on Tuesday at 11am.
NH: bye