Markets live chat transcript for the chat ending at 11:53 on 21 Mar 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Welcome to Markets Live – Alphaville’s daily markets discussion
PM: Neil Hume is with me – and we are all set
PM: It’s B Day!
NH: Hang on, sorry. I’ve been stuck in a meeting for the past hour.
NH: What do you mean, B Day????? Has someone bid for Barclays – where’s the news????
PM: No, not Barclays.
PM: The Budget
NH: Oh.
NH: Zzzzzzzzzzzzzzzzzzzzz
PM: Oh, come on. Concentrate
NH: Why? No one in the equity market concentrates on the budget
PM: Not like the old days, with the budget mid-afternoon, the chancellor finishing just as the markets were about to close – leaving everyone with a last minute scramble.
NH: Spare me the nostalgia. Stock market is too big and far too international for Brown’s words to have much impact now.
PM: But you know I think the City is in danger of falling back in love with Gordon Brown.
NH: What makes you say that? I think he just has everyone on tenterhooks over taxing City bonuses or introducing some arbitrary avoidance measure that hits the wrong target.
NH: All the risk is on the downside
PM: No, I’m referring to the Stalin thing
PM: Lord Turnbull claiming Brown has exercised Stalinist ruthlessness while at the Treasury.
NH: Hmm. You might have a point there. If you’re going to have a control freak, might as well have them in charge of the finances.
PM: So while the country at large is growing to loath the man who will probably be our next PM, the City in typical fashion is going the other way.
NH: as ever
NH: Can we move on now. I want to talk about Barclays.
PM: Why so keen?
NH: Well things are moving on apace.
NH: Yesterday Barclays were in “exclusive preliminary” talks with ABN, but they seem to have already sorted out where the headquarters will be and agreed on the top executive job split.
NH: So I guess we are now in “exclusive intermediate” talks at this stage
PM: “Exclusive conclusive” talks by the end of the week perhaps.
NH: Certainly! “exclusive story” in one of the Sunday papers and then a formal statement on Monday.
PM: “Barclays can exclusively reveal that….”
NH: Oh, no
NH: They’ll just put a statement out first saying they will get back in 24 hours once they’ve got their story straight with the Dutch
PM: 
NH:
PM: Actually, desperate as Barclays are to get a PR handle on this whole thing, I suspect it is getting more difficult – not less.
NH: Think you are right. Seen this note from Simon Samuels at Citigroup
PM: Yes, I was flicking thru earlier. He’s quite a name Samuels
NH: He is – and he doesn’t like mega-banks. Remember him doing some research last autumn which basically took the whole ‘big banks are better’ argument apparat brick by brick.
PM: Quite ironic then that he’s employed by Citigroup
NH:
PM: Anyway, we should run through his arguments on Barclays/ABN Amro
NH: Well, while Samuels says it really is too early to call – to many uncertainties like price, funding structure, etc – he subtitles his research “Master or Servant?”
PM: Which voices his scepticism immediately
NH: Well, he’s got a sell rating on Barclays.
NH: Here’s the key par:
NH: EPS accretion – With Barclays trading on a 25% PE discount to ABN, a largely
paper-funded deal looks c.-10% dilutive, even after realisation of full synergies.
Put another way, to make the deal EPS-neutral we would need to double our synergy estimate to €3.8bn.
PM: Hmm – cutting costs at ABN will not be easy.
NH: Also, Samuels says this:
NH: We have compared the potential deal with ABN against
a number of self-imposed acquisition criteria set out by Barclays. Whereas the
deal does increase the group’s emerging market exposure, on most metrics -
such as a return on investment – it looks like it will fall short.
PM: Well that’s rather blunt.
PM: Also, have you seen this list Citi have put together of 14 potential buyers of ABN.
NH: Ah, no.
PM: Barclays ranks 9th in terms of available synergies and 14th by EPS accretion.
NH: can you paste
PM: No, I can’t. Got it in chart form rather than standard list – but I can tell you that names like HSBC, JP Morgan Chase are in a much much better position to buy ABN and make the maths work.
PM: So, in summary while Samuels at Citi reckons its too early to reach a firm conclusion, his initial view is that the maths just don’t add up.
NH: Right in one
PM: Wait! – ive got the list now.
PM: HSBC 19%
JPMorgan Chase 16%
RBS 15%
BNPP 13%
ING 13%
Santander 13%
UBS 11%
CS 11%
Barclays 10%
PM: Figure relates net synergies as a percentage of ABN costs
NH: ok thanks for that
NH: lets take a quick look at ABN
PM: Yes — what aspect are you interested in?
NH: well these director share dealings that have been announced this morning
PM: Ah, yes, these clairvoyant share dealings by directors
NH: for readers who have not seen it this is what was flashed on Bloomberg earlier this morning
NH: *ABN AMRO PURCHASES WERE CONDUCTED ON MARCH 14, AFM SAYS
*ABN AMRO STOCK PURCHASES BY MGMT FROM FILING WITH AFM
*ABN AMRO\\’S SCOTT BARRETT BOUGHT 2,793 CO. SHARES FOR EU26.85
*ABN AMRO\\’S JISKOOT BOUGHT 6,143 CO. SHARES FOR EU26.85
*ABN AMRO\\’S GROENINK BOUGHT 8,600 CO. SHARES FOR EU26.85 EACH
PM: So, ABN directors buying stock less than a week before the onset of “exclusive preliminary talks”
NH: yes. seems a little odd doesn’t it.
PM: Well — we should quickly say here that ABN have said taht these share purchases were planned all the way back in November
NH: why
PM: Er, they haven’t said.
PM: But there is NO impropriet here. OK?y
PM: None what so ever — the numbers are too small
NH: sure. but the timing does not look good. couldn’t these sales have been pulled?
PM: Well, yes, that’s a fair point — since they knew there were in talks
PM: Had been with Barclays for a month
NH: it all just looks so very amateur
PM: Amateur is the word
PM: Sort of thing a green AIM company director might do — not a director of a major European bank
PM: Right — quick look at the stock market generally…
NH: after a quiet start the FTSE 100 is up 27.6 points at 6,247.9
NH: this follows the publication of the last minutes of the Bank of England monetary policy comittee
PM: Yes — no one on the committee voted for a hike
NH: which is a surprise
PM: Yes — especially after yesterday’s inflation figures
NH: yes they were frightening
PM: Hmm
NH: anyway the market is up and we have another flurry of takeover stories out there
PM: Just extraordinary — so so so frothy on the M&A side
NH: it is. but here’s a little round-up
NH: OK. So we have British Airways up 13.5p at 516.5p on rumours it could be a takeover target for Emirates
NH: sounds total tosh to me and probably the move owes more to speculation that Lufthansa has been in the market this morning trying to pick up a stake in Iberia, where BA already has a stake
PM: Emirates / BA tale is just a re-heat
PM: The Iberia explanation is much more cogent
NH: also Cadbury 15p to 650p on talk its break-up plans could leave it vulnerable to a bid from Kraft
NH: again sounds like total tosh
NH: some people have also been putting around a 370p-a-share MBO rumour in Compass
NH: once again total tosh. the company repurchased shares yesterday
PM:
PM: Be a good website — fun
PM: Just checked — name is taken
PM: 
NH: and the total tosh is not just confined to the FTSE 100. Tthere has also been an outbreak lower down the market
NH: so we have Premier Oil up 55p to £12.49 on talk the buyer from the middle east which saw an offer rebuffed last year is about to come back
NH: and also some vague talk that SSL could be a takeover target for Energiser
PM: Vague talk — worth 4.5% on the share price!!!
PM: SSL up 17.5p at 405p
PM: So have we got anything fundamental this morning??
PM: Or is it all just froth??
NH: no. there is some substance behind the move in UK Coal
PM: Oh, right, do go on
NH: shares up 17.5p to 494p
PM: What’s going on?
NH: Mr Whittaker, the guy who owns Peel Ports and Property, has declared an increased holding of 24.5%, up from 21%, this morning
NH: all of which is surprising?
PM: Why?
NH: well a couple of weeks ago, Mr Whittaker was forced to respond to press speculation about him bidding for the company
NH: in the statement he said his stake was for investment purposes only and he had no intention of making an offer for UK Coal, unless someone else did.
NH: SO the market though he had lost interest in UK Coal
PM: But this morning’s statement suggests otherwise
NH: and what is interesting is the level his has just bought at
PM: Which is?
NH: around 470-480p i believe
NH: before that his last purchases were in September, when UK Coal shares were trading around 200p
PM: Done rather well on this
NH: he has and traders reckon his latest purchase puts a floor under the share price
PM: of course, if UK Coal was bid for and Mr Whittaker decided to trump that offer then he would have to pay at least the current price
NH: it also shows that Whittaker believes has confidence in the values analysts are putting on UK Coal’s property portfolio
PM: What sort of figures are we talking about?
NH: anything upwards of £500m
PM: and UK Coal is valued at?
NH: Currently £775m
PM: Ok — let’s move on
PM: What else is moving?
NH: Hotel company Millennium & Copthorne
PM: I see the shares are up 27p at 677p – one of the best performers in the FTSE 250
NH: It is and the move is being pinned on a very bullish research note from Cazenove
PM: What does it say?
NH: That M&C shares are materially undervalued and worth £10 each
PM: That’s punchy
NH: it is
PM: Do we have a copy?
NH: not yet. still working on it.
NH: Actually Caz also pushed out an interesting note on Rentokil late yesterday
PM: And that said?
NH: it picked up a private equity bid for Servicemaster – a US version of Rentokil. Company into pest control, landscape maintenance etc.
PM: How much did the PE pay?
NH: $4.5bn
PM: Hmm
NH: Caz previously had been sceptical about the chances of a PE bid for Rentokil but on the back of this deal is thinking again
NH: it says the bid for Servicemaster shows that PE companies are quite happy to purchase support services companies, with little asset backing and high margins.
NH: inb fact it went on to say that the management of Rentokil could attempt to imitate the Servicemaster deal, which was also backed by management
PM: Interesting
PM: Where are the share trading?
NH: up 1.25p at 158.5p.
PM: OK. Let’s have a look lower down the market
PM: Any standouts??
NH: Well, dog of the day is cake maker and Soren malt loaf company Inter-link Foods
NH: shares down 105.5p to 74.5p – that’s a drop of nearly 60%
PM: Oh my.
PM: Dog food
PM: What on earth has gone wrong?
NH: well the first thing to say is that this company has plenty of previous
PM: 
PM: 
NH: i was just flicking through the FT archive this morning and I was just staggered by its recent history
NH: 16 Feb – profit warning
NH: Feb 2 – executive chairman resigns due to ill health
NH: Jan 10 – profit warning
NH: Nov 10 – profit warning
PM: Dear oh dear oh dear
NH: before that takeover talks were terminated
PM: 
PM:
PM: So — pray tell — what is today’s news?
PM: I suspect it is not good
NH: well, this should not come as any surprise
NH: profits warning
PM: Go on
NH: the expects to make a loss this year and incur some exceptional costs
PM: sounds nasty -
NH: it is and it get worse
NH: as a result of losses incurred in the past couple of months, borrowings have ballooned and the company is now engaged in “open and constructive dialogue” with it lenders.
PM: Sounds ominous
PM: Especially given they are driven to describing talks with their bankers as “open and constructive”
PM: if they were not …
PM: Any analyst comment on this one?
PM: Any brave enough to still be covering it?
NH: got some stuff from numis secs
NH: What has come to light: The move to central distribution along with the transition to the Tropos
management information system has been at the crux of Inter Link Foods’ woes. It has emerged that the
interface between the Tropos and the Christian Salversen systems have not been seamless. As a result
the company has not had sales and margin information on an ongoing basis. Whilst this problem has now
been rectified it has resulted in both sales and gross margins being significantly below management’s
NH: As a result of this new information, we have had to scale back our sales forecast for April 2007 to
£123.3m (was £129.9m) and PBT forecast to a loss of £1.7m (was a profit of £3.2m), which is prior to
non-recurring charges of c. £7-8m (was £5m). Furthermore, the company is now expected to end the year
with c. £62m debt on its balance sheet. Barclays has been supportive and continues to work with
management to trade through the current situation as long as the situations continues to show an
improvement. Assuming that the company’s management system and the Christian Salversen systems
are now in sync, we believe the situation has now stabilised, our forecasts for the year to April 2008 and
now come in at £129.4m (was £136.3m) for sales and a profit of £2.3m (was £5.4m) at the pretax level.
NH: Based on current earnings, a valuation of c. 100p (17x Dec 07 earnings and 8x Dec 07
EV/EBITDA) would seem appropriate
PM: Seem rather generous to me — in the circumstances
NH: it does. given the last profits warning was what, a month ago?
PM: Hmm
PM: Ok — what else has caught your eye?
NH: Future Internet Technologies
PM: Ah. The interenet telephony company that Mr Robert Bonnier has a big shareholding. Weren’t its shares up something silly yesterday like 25%
NH: they were
NH: andtoday we have news that Mr Bonnier has sold his stake
PM: He’s sold it !!!?
NH: yep
PM: Are you sure??
NH: yes
PM: I don’t need to tell you that you have to be very careful when looking at Mr Bonnier’s holdings. He chops and changes them between many differenct CDF providers, so no one knows what is going on
NH: No. No. I think he has sold it.
NH: Obviously it is slightly complicated. He has actually sold Cold Investment, the vehicle that housed his 20% stake in FTI.
PM: Ah. So who has he sold this vehicle to??
NH: I think I will quote from the statement if you don’t mind
NH: Exploitatiemaatschappij Holland-Brabant BV, a company in which Johan Frencken is interested.
PM: V funny
PM: Say that again
NH: Exploitatiemaatschappij Holland-Brabant BV, a company in which Johan Frencken is interested.
PM: Who he????????????????
NH: well the rumours in the market is that he is a member of the Heineken family
PM: Let’s Google him and find out
NH: anything???????
PM: No
NH: I suppose he could be a distant relative
PM: yeah, right
PM: Exploitatiemaatschappij
NH: anyway, the talk in the market is that Mr Frencken is a seriously wealthy individual and that he picked up Bonnier’s stake because he is excited by FTI’s technology.
PM:
PM: Do remind me — what does his tech do??
NH: it seems to be some sort of software that allows internet telephone calls to be routed through hosting companies
NH: we are calling Future Internet FTI because this is its stock market ticker
PM: Ok
NH: The company has also announced results today and appointed a new heavyweight CEO today
NH: Robert Harris Marcus
NH: Taking this from the statement – he has joined after nine years at Microsoft where he most recently served as a director on the company’s elite mergers and acquisitions team
PM: Oh the elite M&A team
NH: yeah special forces.
PM: We couldnt make this up!
PM: elite M&A
PM: As opposed to the bog standard M&A team at Microsoft
PM: I also see he was “ a thought-leader in unified
communications and voice-data convergence and was responsible for both areas at Microsoft.
PM: Sounds like Martin Lukes
NH: hang on I’ll paste some more from the statement
NH: As a Solution CEO at Microsoft, he was responsible for a portfolio of
communications and collaborations solutions, including the highly successful
Intranet Solution that generated an estimated $100 million worldwide. He served as Director of Strategic Business Development and Communications in Microsoft\\’s worldwide partner group.
PM: ENOUGH!
PM: One thing puzzles me
NH: what
PM: If things are looking so rosy at FTI and they have managed to recruit a decent CEO and have former Egg boss Paul Gratton as chairman, THEN WHY ON EARTH DID BONNIER SELL?
NH: Have you seen the share price recently?
PM: no
NH: its compliacted because of a consolidation but in the past month it has risen 135% for no reason
PM: Wot?
PM: For no public reason, i guess
NH: the company is now valued at £135m and as this morning’s results statement shows it has yet to make any money
NH: In fact it actually made a loss of a £1.4m from its continuing operations in the six months to December 31
PM: Bizzare. Something tells me we are going to here more about this company.
NH: hang on just getting the quote on FTI
NH: shares off 5.5p at 243.5p
PM: Can I just put this up …..
PM: 
PM: I’m a seller of Future Internet at 243p
PM: Right — we should up now
NH: but before we do can we just take a quick look at Umbro
PM: Why? Are you buying a new England shirt ahead of the big clash with Israel on Saturday
NH: Very funny, but no
PM: You already have one?
NH: again very funny but no
NH: Listen there are rumours that Umbro could be a takeover target for Germany’s Puma.
PM: Really?
NH: yes
NH: apparently the boss of Puma briefed the salesforce at Credit Suisse yesterday and gave the impression that a deal could be on the cards
NH: according to my spies he said that with Puma was in the fourth stage of its restructuring programme and looking to leverage its balance sheet with a football related acquisition
PM: So this is more than froth?
NH: yes
PM: Does Umbro fit the bill?
NH: certainly does as the boss of Puma, Jochen Zeitz, said they were looking to target companies that were no bigger than 10% of their turnover
PM: Hmm — what are the shares doing?
NH: up 6p, or 4.2%, at 150p
PM: Rating?
NH: shares trade on 10 times earnings a year out
PM: One to watch
PM: Right — that’s it. Got to get our chairs comfy for Gordon.
PM: Thanks for joining us today. Back tomorrow with next session at 11am
NH: bye