FT Alphaville » Markets live transcript 4 Oct 2007

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Markets live transcript 4 Oct 2007

Posted by Paul Murphy on Oct 04 11:01.

Markets live chat transcript for the chat ending at 12:04 on 4 Oct 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)

PM: Welcome to Markets Live, FT Alphaville’s daily markets commentary

PM: Neil Hume is with me. Raring to go

PM: Managed to oust Helen

PM: Before she got too comfortable in my job

NH: So, did you have a nice time off

PM: Was alright

NH: And glad to be back at work?

PM: Well actually, I’m completely dazed.

PM: What’s going on? Why’s the Footsie at 6585.

NH: I know – about 150 points short of its high for the year.

PM: And now everyone’s running around saying “Bhy the banks! Buy the banks! Buy the banks!”

PM: Oh – and Sell the miners

PM: I’m thoroughly confused.

NH: So u go off for three days and come back to discover everyone’s moved to Draaismaland

PM: That’s the golden era of equities forecast by Morgan Stanley’s Teun Draaisma in the middle of August.

PM: Said that if we get thru the credit crunch – and so long as the US does not go into recession – then we could be looking at fresh leg of the bull market the like which has never been seen.

NH: it could be like 1999 again

NH: a buying frenzy that sees retail punters pile into the market big time

PM: Steady

NH: before the index blows up completely

PM: Actually if you want an example of this….

PM: You have got to go and have a look at this.

PM: Here’s the link….

PM: http://www.cnbc.com/id/21117305

PM: Go half way down the page and view the embedded video – you’ll have to listen to some advert first, but stick with it….

PM: It is quite hilarious. Bunch of CNBC presenters SHOUTING AT EACH OTHER!

NH: About what?

PM: About how they’re SHOCKED

PM: SHOCKED

PM: About the recovery in the credit markets.

PM: And bankers and financiers and traders are also SHOCKED

NH: And they’ve got some exclusive news

NH: In a Fast Money exclusive Dylan Ratigan reports first, that financing for a TXU buyout could be in place a soon as next week. And he says, the $32 billion deal will likely close by the end of October and possibly as soon as next Friday.

NH: Bankers and traders are all shocked by how resilient the financing market is right now, says Ratigan. The deal is one of the largest private equity buyouts ever.

NH: Do you understand how shocking this is. If not, read this:

NH: Finerman agrees that the speed and the depth of dealmaking is shocking. “I can’t convey how shocked I am at the speed!” She adds, “It’s like the credit crunch is over.”

PM: Sam’s done a v funny post on it, here..

PM: http://tinyurl.com/2klm9n

PM:

PM: Right I suppose we’d better have a Crock Watch

NH: suppose so

NH: Well readers, this morning sees the shares of the former bank up 19.3p to 171.1p – that’s a rise of 13%

PM: Crocket

PM: It’s the former former bank, now

PM: but why’s it up

NH: I can only presume it is on the back of these Citigroup stories

PM: bit behind the pace this morning, can you refresh my memory

NH: it seems Citigroup, which was appointed as advisor to the Crock on Wednesday has offered to provide financing to potential buyers of the former bank

PM: So Citi take billions of write downs earlier in the week and by Thursday they are willing to lend what, over £5bn to the fromer former bank

NH: I know it’s odd

NH: but I suppose it shows the banks are recovering their confidence, which has to be good for the market

PM: Hmmmmm

NH: anyway for four bidders are supposed to be in the frame for the former, former bank

PM: I don’t believe it

NH: in fact there are a few rumours around this morning as to what shape a deal could take

PM: Go on

NH: Apparently one possible option under consideration would see the Crock issue new shares to a private equity firm at a very low price so to get fresh capital into the bank.

NH: but you have to think that with the liabilities the Crock has that would be akin to a debt for equity swap

PM: It would result in massive dilution for equity shareholders

PM: Right anything else to say on the Crock

PM: starting to get Northern Crock fatigue

NH: what about this City AM story???

PM: Spaniard Ruiz-Mateos ‘approached for help by UK bank’”

PM: As pointed out by cmsd2 below

PM: Well — if it’s in CityAM better take it seriously

NH: lets look at the facts here

NH: a) the Treasury is on control of this situation

NH: the former bank is controled/owned by the Treasury now

NH: somehow I can’t see them approach a man who dresses up as superman to save Northern Crock

PM: And slaps finance ministers around

NH: more interesting is the other guy who took a stake in the former, former bank yesterday

PM: Who’s that?

NH: Nick Levene

NH: now this guy is a serious punter

NH: real wheeler/dealer

NH: a north londoner

NH: made his money in the options markets

NH: sits on the board of Integrated Asset Management with is run by one of the Arbib’s

PM: Ok

NH: of Perpetual fame

NH: he is also deputy chairman I think of Nicola Horlick’s Bramdean Asset Management

PM: So he is well connected

PM: how much of the Crocket does he own?

NH: he has interests over 1.1% of the former bank

PM: interests? So it’s a derivative position

NH: Yep and I am told there are all sorts of hedges in place

NH: Basically Levene is not betting on the price rising but volatility remaining high

NH: which as far as the Crock goes must be a good bet

PM: Best way to bet on crocketwreck — that the shares go up and down

NH: Apparently JC Flowers has a meeting with the Treasury tomorrow to discuss its bid for the former bank

NH: and in case anyone is in any doubt, the Treasury are selling this business

NH: they effectively own the former bank and I don’t think they are massively bothered if shareholders end up with a stock worth 10p

PM: Yes — hearing the Treasury was alarmed at preparations for receivership — could see another Railtrack pileup coming

PM: Prospect of investors turning round and suing gov for losses in administration — a happened under stephen byyers

PM: But — I just do not believe that Christopher Flowers has turned into some philanthropist

NH: nope he will rip the throats out of equity shareholders

PM: Issuing a short term SELL on the Crocket — will come back to earth like the stick

PM: at 170p –

PM:

NH: quick newsflash. it’s on the Azko Nobel/ ICI deal

PM: Go on

NH: you know there was lots of murrurs about Akzo shareholders blocking it

NH: TPG-Axon, the US-based investor that owns 3.5 per cent of Akzo, has publicly opposed the deal

NH: wel this morning another US hedge fund has come out in favour of the deal

PM: Who is that?

NH: Paulson

NH: here’s the flashes

NH: *PAULSON INTENDS TO VOTE IN FAVOR OF ICI ACQUISITION :AKZA NA
*PAULSON STAKE DISCLOSURE COMES FROM E-MAILED STATEMENT
*PAULSON HAS 5.1% STAKE IN AKZO :AKZA NA, ICI LN

PM: So what’s teh spread on this deal at the mo?

NH: ici shares trading at 652p, up 2p

NH: offer price is 675p

NH: we are looking at a Jan 2 close for this deal, assuming reg clearance

PM: Ok — thanks for that

PM:

PM: VP is asking about HSBC below — any thoughts? I’ve been away…

NH: there could be something in this

NH: volume in HSBC was huge yesterday

NH: that could indicate stake building

NH: although I would caution that HSBC shares were massively traded in Hong Kong yesterday as well

NH: so it could just have been an arb

NH: shares up a further 1.9% to 952.5p

NH: volume is 28m already

PM: Rumour that Chinese investment might be on its way…

NH: 90-day avg volume is 58m shares

PM: Direct state investment

NH:

NH: actually there are loads of rumours around in the banking sector this morning

NH: perhaps the most outlandish is that BoA are going to bid 750p a share for Barclays

PM: This story is sporting whiskers

PM: Doesnt mean it wont come true one day…

PM: But right now?

NH: still has helped the barclays share price – up 20p at 660p

NH: actually the strength in the banking sector is europe wide today

NH: what we are seeing is investors coming out of their defensive positions in the mining and telecom sectors and buying back into the banks

NH: everyone seems to think the credit crunch has passed

NH: and who can blame

NH: if Citi want to lend £5bn to Northern Crock the good time must be back

PM: Draaismaland

NH: yep if the financial version of Disneyland

PM:

PM: Right lets move on

PM: To an FT scoop

PM: But one that was mentioned here on Markets Live first

NH: and rubbished by Helen

NH: yep for about the tenth time yesterday we mentioned rumours of a bid approach for Abbot Group

PM: The oil services firm

NH: but for once we had some meat to put on to the bone

NH: we said that 3i had made a 375p a share offer and had been granted access to the company’s books

PM: and its been confirmed this morning

NH: As good as

NH: this is what the company had to say in response to our story

NH: Abbot Group plc (“Abbot” or the “Company”) notes the recent press speculation
regarding a possible offer for the Company. The Board confirms that it has
received proposals which may ultimately lead to an offer being made for the
Company.

There can be no certainty that either an offer will be forthcoming, or at a
price that would be acceptable to the Board.

PM: so no names

NH: no, but one is deffo 3i

PM: one??

NH: check the line in the statement

NH: says there has been “proposals”

PM:

PM: So there is more than one possible bidder

NH: yep, we think 3i is in the lead. They are the only group to have made an indicative offer and got access to the books

NH: But others could be interested

NH: My understanding is that Abbot has been shopped around to a number of private equity groups, including CVC

NH: I also think a fund in the Middle East was approached

PM: So this could turn into an auction

NH: could do

NH: but its worth remembering that 3i has very deep knowledge of the oil field services sector

NH: earlier this year it was part of a consortium that sold Vetco Grey, an equipment supplier to the oil and gas market, to GE

NH: think they made three times their initial investment

NH: but importantly it kept a division called Aibel, which supplies services to the oil and gas market

PM: So that could be merged with Abbot Group

NH: could be

PM: Any analyst comment?

NH: this is from oriel securities

NH: The Executive Chairman, Alisdair Locke still owns 13% but we wouldn’t see him standing in the way of a “good” offer.

NH: The shares have underperformed the sector over the past 12 months and the Company
is highly geared but financial performance in H2 07 will see a significant jump on H1 with
all three jack up rigs now fully operational

NH: On our forecasts 375p would imply a 2008E P/E of 21.2x vs the sector on 19.2x.
(Sondex offer implied 24.0x Feb 09E)

NH: Negotiations may still be at a preliminary stage and there may be a risk that this deal will not be completed. However, we see the shares performing strongly today and would BUY up to 320p

PM: and where are the shares trading at the moment

NH: abbot shares up 60.5p at 352p

NH: that’s a gain of 21% – the biggest riser in the FTSE 250

PM: well done, direct hit (finally)

NH: and you read it here first

PM: Read it here repeatedly – month in month out

PM: How many times?

NH: a new top broker contact has just sent me another note on Abbot

NH: wanna see it?

PM: Sure — you are not trying to avoid question are you?

NH: of course not, this is a really interesting note

NH: here it is

NH: Hot on the heels of the Sondex deal, the FT announced this morning Abbot Group is in talks with 3i regarding a possible
takeover. A later RNS statement confirmed the group has received ‘proposals’ (suggesting there is more than one
interested party) which may or may not lead to an offer. The FT article, which appears well informed, suggests the offer is
for 375p (£870m), a 28% premium over last night’s close and values the shares at a 2008F PE of 17.5x and EV/EBITDA
8.9x, a c5% discount to UK sector but a material premium to international driller valuations at 8.5-10x 2008F PE and
EV/EBITDA of around 6x.

NH: We have persistently said Abbot was the strongest takeout candidate in the sector given its
attractive asset base/rig fleet, mix of drilling/engineering, with good international exposure (nothing in the saturated North
America market). We suggested North American drillers or private equity would be possible bidders (last week there were
rumours of a Middle Eastern Fund). We have spoken to the company this morning who can’t comment any further on this.
Clearly good read across for the sector: Wood (Buy), Hunting* (Buy), Expro (Buy), and non researched stocks:
Petrofac/Lamprell/Wellstream. We believe the strongest candidates would be Wood/Expro.

NH: and ABN also reckons there is some overlap for Amec group

NH: now Amec has £600m to spend, has a new focus on the oil field services market. so we can expect to see further deal, me thinks

NH: pasting

NH: This morning’s Financial Times contains an article that Abbot Group is in talks with 3i over a possible takeover for
£870m/375p a share. Given that AMEC will have over £600m of cash on its balance sheet by the year-end and is known to
be on the look-out for a possible transformational deal in this area (Wood Group was openly discussed and not ruled out at
the September AMEC analysts’ meeting), we feel that AMEC will undoubtedly do more than make a passing glance at Abbot
as a potential deal.

NH: We calculate that at over 370p, an Abbot deal for AMEC (rather than 3i) would be over 20% EPS
enhancing for AMEC in 2008 prior to cost savings (or c25% if Abbott’s central costs can be ripped out). However, at AMEC’s
H1 results, the group hinted they were more interested in adding on capacity in services they already offer and this may
preclude them from wanting to get into upstream drilling at this stage of the cycle despite the financial attractions of a
possible Abbot deal. Nevertheless, given that financially a potential AMEC/Abbot deal could work, investors should watch

NH: this space. As for the long mooted AMEC/Wood possible deal (as mentioned in both the Daily Mail and Daily Express on 2
August 2007), our best back of the cigarette-packet assumptions re any AMEC/Wood Group tie up is that AMEC could pay
up to 475p for Wood Group and see 13% earnings enhancement (but only with c£20m of cost savings being removed from
the combined businesses). At 475p say, that would represent a massive 23.5x exit PER on 2008 earnings for Wood
(compares to c17.5x for Abbot on Dec ‘08 earnings for the 370p plus exit price suggested for Abbot today in the FT). Any
deal to buy Abbot could be done off the company’s own balance sheet. Any deal to buy Wood Group would need to be
c60% funded in AMEC paper/40% cash. With AMEC’s share price currently trading at 766p (ahead of our 670p price
target), clearly an earnings enhancing deal of some sort is already expected for AMEC sometime in the next 6 months in
our view.

PM: So Amec could pay 475p for Wood group??

NH: wood group currently trading at 408p, down 0.75p

NH: thanks Anon

PM:

NH: we are nothing if not persistent here on Alphaville

NH: we are like a dog with a bone once we have got hold of a story

PM:

PM: what else has caught your eye this morning??

NH: Workspace

PM: what’s that???

NH: provides commercial properties to let throughout London including offices, serviced offices, light industrial, studios and workshop space, according to its website

PM: So why are you interested in that?

NH: well, there was a bit of a buzz around in the stock late yesterday

NH: and this morning we found out why

PM: Go on

NH: trefick has announced that it has an interest over 21% of the company

PM:

PM: Trefick is the investment vehicle of Jack Petchey

NH: and the company must be pretty worried by this because they have taken the unusal step of outing him

NH: here’s the statement

NH: The Company has been notified verbally by a representative of Trefick that
Trefick, or parties affiliated with Trefick, are interested in ordinary share
capital amounting to “approximately 21%” of Workspace Group PLC through
contracts for differences (CFDs). No formal notification has been received by
the Company in this regard.

PM: How interesting….

NH: slapped wrist for Mr Petchey

PM: Company outing the stakebuilder

NH: mind you it was approached verbally

NH: all very odd

NH: and this leads into an interesting debate on CFDs and disclosure

NH: in takeover situations now, the underlying holder of a CFD position must be announced. like Mr Levene in Northern Crock

NH: but outside of a takeover there is no such rule

NH: which makes things very opaque

PM: Hmm — wonder whether you can unmask cfd holders with 212 notices

PM: 212 notices are sent out by companies requiring info on the beneficial holder of stock

NH: dunno

PM: Forms have to hold 212 registers, taht are on public display

NH: anyway all of which detracts from the fact that petchey having an option over 21% of this company is significant

PM: I’ll say

NH: I have lost count of the numbers of times he has taken a stake in something and then 3 or 4 months down the line it gets taken out

PM: So this is a situation to watch

PM: is Workspace trading at a big discount to net asset value?

NH: i have no idea. i presume it is. petchety does not buy anything that is overvalued

NH: he is a real 80p in the pound man

PM: Any other background?

NH: sorry Workspace is not one I have followed really closely

PM: fair enough

NH: but I will be back with more on it tomorrow

PM:

PM: now you wanted to look at Benfield, the reinsurance broker

NH: i do

NH: stock raced up last week amid rumours that Goldman Sachs had made an approach of about £700m

NH: company did not respond to the speculation, which everyone thought was odd

PM: Indeed

NH: but the consensus of opinion seemed to be that Goldman has looked at the company earlier this year but had backed off because of the credit crunch

NH: anyway the shares are down 9.75p at 295p this morning as the company has poured cold water on the bid rumours

PM: So it has put a statement out?

NH: sort of

NH: after the market closed last night, the company quietly slipped out statement which revealed that one of their executive directors, Robert Bredahl, had sold stock worth almost £800,000

NH: clearly if the guy thought a takeover was on the way he would not have sold

NH: and obviously if the company was in takeover talks he deffo would not have sold

PM: So we can say that Benfield are not in talks and don’t look likely to be for a while

PM:

PM: Any RAW for the readers this morning — it’s a red blooded market, after all

NH: wel there is a rumour hat d’iteren is looking at avis europe, the car hire company

PM:

NH: but the better story involves

NH: and it comes from the man who gave us Abbot

PM:

NH:

NH: Plus Markets

PM: This is the old Ofex unregulated trading platform

PM: Simon Brickles, the old AIM boss, is running the show

PM: Actually, he’s pretty young for his job

NH: shares v strong this morning

PM: So what’s the PlusMarkets story??

NH: up 2.75p at 24.25p

NH: a rise of 11.5%

NH: on rumours of bid approaches

PM: approachs?? plural?

NH: one is supposed be from Project Turquoise, the inter-bank effort to come up with a rival trading platform to the LSE

NH: the other is Borse Dubai

NH: and the last one I can’t mention because its stretches credibility to breaking point

NH: and you would all laugh at me

PM: we would not do that, promise

NH: Nah, don’t believe you

NH: if I said this name the men in white coats would be called to take me away

PM: come on it can’t be that bad

NH: let’s see if you can guess it

PM: Shanghai?