Markets live chat transcript for the chat ending at 11:51 on 17 Oct 2007. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Good morning and welcome to Markets Live – FT Alphaville’s daily markets commentary.
PM: Good morning and welcome to Markets Live – FT Alphaville’s daily markets commentary.
PM: I’ve got system probs — bear with me
PM: Must have caught them from Neil — who is with me — i believe
PM: Ok now.
PM: Neil is with me
NH: morning
NH: on the phone
NH: off now
PM: WE ARE GOING STRAIGHT IN WITH A BIG ONE
NH: before we do
PM: No?
NH: just relaying thhe details of my last call
NH: VALLOUREC, GAZPROM EUR260 BID
NH: old story
PM: But doing the rounds this morning
NH: Vallourec is French, makes steel pipes
NH: The Russians have denied interest countless times
NH: but its that sort of monring
PM: So repeat — WE ARE GOING STRAIGHT IN WITH A BIG ONE today
PM: yes?
NH: Er, well, yes – but we’d agreed to put in some escape shuts. – string up a safety net.
PM: To catch our falling careers?
NH: Yes.
PM: Well I don’t think we need that. — safety net
PM: Think if you were one of the readers – would you rather watch someone on a high wire act with a net – or without a net.
NH: Look, if I wanted to be a circus act I would have
NH: joined a circus
PM: or stayed at the Guardian
NH: that’s a bit unfair
PM: Anyway — one with the story
NH: well there’s only one thing people are talking about this morning
PM: Go on
NH: and the word is that there has been an approach for a FTSE 100 company
PM: Excellent
PM: name in the frame?
NH: its one you know well
PM: I do
NH: biggest riser in the FTSE 100 at the moment
PM: Could be Scottish & Newcastle by any chance?
NH: yep
NH: apparently Carlsberg have offered 750p a share
PM: S&N currently 38p at 674.5p
NH: volume is big
PM: Surged in the last few moments
NH: 10.8m shares already
PM: This is more than a rumour — 6%
NH: of course this bid has been a long time coming
PM: If it is true of course
NH: latest market intel is that S&N’s new CEO John Dunsmore flew out to Denmark couple of weekends ago
PM: So it would be a friendly deal
NH: not sure
NH: but I know one thing – it would start a bidding war
PM: you’re dead right there
PM: and that’s because of S&N’s stake in BBH
NH: Baltic Beverage Holdings
NH: which is one of the biggest brewers in eastern Europe and Russia
NH: S&N owns 50% of BBH and Carlsberg the balance
NH: But a number of other companies including SABMiller would die to get their hands on that stake
PM: They would
PM: of course we have been banging on about this story for months and months
NH: we have
PM: SAB and Diageo considered a break-up bid for the company earlier this year
PM: Will state that again — despite their denials, SAB looked at a joint break up bid for S&N earlier this year
PM: 
PM: and then Carlsberg changed its ownership structure so it would be possible to bid for S&N
NH: I think the point to make here is that this rumour may have no foundation
PM: But we are actually minded to believe that something really is happening with Carlsberg this time
NH: S&N is just too small to survive in a rapidly consolidating sector
NH: only last week, SABMiller merged its US operations with Molson in a $10bn deal
NH: that we broke incidentally
PM: Yeah, you are not letting us forget that one are u
NH: i am not
PM: Bear with us — both myself and Neil are on the phone….
NH: jungle drums are really beating on this one
PM: OK — we are now getting reports of some serious running around on the S&N front
NH: PR people in a tizz apparently
PM: 
NH: you know what. I think we are going to get a statement shortly in this one
PM: I think you’re right. This game on
PM: And its probably going to turn into the best brewing takeover battle in the world
NH: probably!
NH: 
PM: So yes — FXtrader — we do think that SAB will want to have a go
NH: look the background on that deal is as follows
NH: SAB wants to ringfence its US assets so it can pursue deals in emerging markets
NH: the Coors tie up was brought by around 6 weeks
NH: we assume that’s because they know that Carlsberg is about to push the button a bid for S&N
PM: We think — no we know — that SAB have done huge amounts of scenario planning on this
NH: so SAB get all their ducks in a row so they can respond
NH: and the US was their biggest problem
NH: but now that have outsourced that biz to Coors, whose management team are v highly rated
PM: How about Europe and the UK — we know that Diageo was looking to take SAB’s brit brewing business off its hands — or enter into some sort of joint venture
PM: Bolster Guiness — we still think that logic appllies yes?
NH: yep
NH: if Carlsberg goes ahead there will be a might scrap over S&N
PM: Ok — to recap. And state that this situ remains v raw
NH: good point from FXTrader
NH: Anheuser need to do a deal
NH: too dependent on the US
NH: S&N could well appeal
PM: All the talk is of a consolidation end game in this sector — S&N going could well herald that
PM: Again recap — we suspect a statement is coming out. We dont know what it will say. But good sources insist that there have been low key talks very recently between S&N and Carlberg
NH: i think it is all connected to this rumoured trip by S&N executives to Denmark
PM: Ok, let’s move on
PM: 
NH: PG wants to know about A&L
NH: shares up 17.5p at 792p
NH: is a vague bid story around in the one
NH: but I think probably have been looking for this rumoured FTSE 100 bid and concluded that because A&L has fallen so far it could be vunerable
PM: Guess work tho — isnt it?
NH: let’s not forget the company was approached by Credit agricole last year
NH: if they are still interested now would be a good time to make another move
NH: shares 30% off their highs
PM: i just think the sector remains too raw — after the crunch.
NH: good point
PM: Money markets are NOT back to normal remember
NH: I agree
NH: although RBS and friends were able to finance their offer for ABN
NH: so it can be done
PM: Yeah yeah
PM: BSB suggests Buffett might be interested — commenting below
PM: Put it together Bear Stearns
PM: Transtlantic Subprime synergies perhaps
NH: yeah, yeah
PM:
PM: the wider market….
NH: FTSE 100 up 9.3 points at 6,624.6
NH: follows two days of losses when the index fell around 100 points
NH: actually slightly surprised we are up this morning
PM: Why?
NH: well the mining sector is weak
NH: and that has been driving the market higher recently
NH: we have had a disappointing trading update from Rio Tinto
PM: ah yes
NH: shares down 132p at £42.87
NH: and people are also digesting a note from Morgan Stanley that came out yesterday
PM: Big fall — what did the MS note say?
NH: basically echoed what many people are thinking
PM: that mining stocks are overvalued
NH: Sort of
NH: I think we have got to the point where earnings upgrades are needed to justify some of the recent staggering share price moves in the sector
PM: have you got this note?
NH: hang on a minute
NH: just pulling it up
NH: Recalibrating the Supercycle drives another round
of upgrades. We have increased bulk commodity and
selected metal prices by 10-20% as we believe there is
an increasing risk of supply running out in 2008. We are
upgrading earnings by up to 60%, and price targets on
average by 35% as a result, and we believe the mining
sector remains a compelling investment on a 6-12
month view, as we identify five strong reasons to
underpin further outperformance.
NH: Risk of short-term correction. The tremendous
liquidity and momentum-driven rally of the past 6-8
weeks has added an incredible US$400bn of market cap
to the top 14 global miners alone. In our view, the sector
is overstretched in the short-term, with consensus
valuations close to the highs of the past 2-3 years. We
believe there is increasing risk of a near-term correction,
which would provide an attractive opportunity to build
new positions.
Anglo American downgraded
NH: Anglo American downgraded to Equal-Weight on
relative valuation. Although we remain positive on the
long-term outlook for Anglo, with only 5% upside to our
new price target, the shares offer less potential than
their peers. We recognise that an announcement of an
aggressive cost-cutting target, or the potential sale of
Tarmac, would change the outlook, but for the time
being we see better value elsewhere in the sector.
NH: Norilsk, Xstrata and BHP Billiton are our top picks,
given upside potential respectively of 33%, 24% and
12% to our new price targets. Trading on a 2008e PER
of 5.4 times, EV/EBITDA of 3.8 times, and close to our
revised NPV of US$290, we believe Norilsk is
particularly compelling at current levels.
PM: Hmm — and that’s comes from Draaismaland — warning of near-term correction — think overcooked short term
PM: Interesting
PM: While we are on the macro front
PM: Got some stuff for Grim.
PM: This is from the weekly newsletter of a guy called John Hussman – American, btu he’s said to be v good.
PM: We did a post on it earlier — but wears repetition
PM: He’s looking at the equity market generally and sees it as :
PM: a combination of overvalued, overbought, overbullish conditions in an environment of upward pressure on yields or risk spreads
NH: Er, right.
PM: Well he goes through a string of conditions and observations and then says:
PM: There are only a handful of historical periods that fall into this syndrome of conditions: December 1972, August 1987, July 1998, July 1999, December 1999, March 2000, and October 2007.
All of the prior instances were followed by steep market losses. When the declines were not abrupt, they were protracted. There is not a single counter-example.
NH: So he’s saying there’s going to be a crash.
NH: well it is October
PM: Yeah! — well “disaster” actually….
PM: For our part, we are fully hedged, and would be even on the basis of less extreme conditions. Given my general avoidance of forecasts, there are very few situations when I would state my views about the market as a “warning.” Unfortunately, in contrast to more general Market Climates that we observe from week to week, the current set of conditions provides no historical examples when stocks have followed with decent returns. Every single instance has been a disaster.
NH: 
PM: Friday is the big anniversary of course
PM: 
PM: You have been warned
PM:
PM: i did a promo for Markets Live earlier — adn said we were going to explain why ICAP was up 4%
NH: and…………..
PM: Well I havent been able to find out. Have you?
NH: no
NH: called loads of people
PM: Hmm — Stock up 18.5p at 537
NH: no one can come up with an explanation
NH: OJ is of course correct
NH: if it is in the PRESS, it is in the PRICE
PM: So short S&N and buy the FTSE 100
PM: Dare ya!
NH: go on OJ. have a go
PM: And we’ve got another reckless reader commenting — Ian
PM: You will 
PM:
PM: Where shall we go?
PM: Any more raw?
NH: good idea
NH: aside from S&N, quite a few stories doing the rounds today
NH: British Land
NH: the stake building story is around again
NH: Saudi fund apparently
NH: although the point to make here is that B Land is a REIT
NH: and no one shareholder can own more than 10% of a REIT
NH: so if anyone says that a Saudi fund has amassed 15% of a property company
NH: you know it is probably wrong
PM: hang on a minute — didnt jack Petchy find a way round that recently — thing called Workspace
NH: ah he did
NH: bought around 18% of the company
NH: but did through three vehicles
PM: Very strange but also looked rather smart
NH: anyway B Land shares up 7p at £10.88
NH: also hearing some more stuff on Resolution
PM: What ya got?
NH: well, we are hearing that Standard Life and Swiss Re are closer to making a bid for Resolution than most people think
NH: in fact, the word in the market is that a knock out offer could come this week
PM: OK, let’s rewind
PM: what offer is on the table for RSl?
NH: At the moment we have 660p from Hugh Osmond’s Pearl Group
PM: Ok
PM: and u are hearing that SL will come in above that level??
NH: yep
NH: and if they do, SL will try to get an irrevocable from Osmond
PM: How much does he own??
NH: just over 16% I think
PM: And would he sell??
NH: if the price is right am sure he would back an offer from SL
PM: Sense is that Osmond is rather cold and rational when it comes to investment
PM: ok, let’s put some share prices in
NH: RSL off 1p at 704p
NH: SL up 3.75p at 286.25p
PM: Thanks for that
PM:
PM: What else going on?
NH: Something very strange going on in the residential property sector
PM: What’s that.?
NH: Well we got a hunking great profits warning from this estate agency and surveying group, LSL Property Services – and the shares went down!
PM: What, you think the world has turned up upside up, rather than upside down.
NH: Well, it has in housing – all of a sudden
NH: But you’ve got to ask – what happened to the market’s ability to anticipate events, rather than everyone going potty when an expected piece of news arrives.
PM: Go on
NH: Well here’s the top of the statement from LSL:
NH: In our Interim statement released on 9 August 2007, we reported that recent successive interest rate rises were starting to affect housing affordability and consumer confidence generally and that lower housing transaction volumes in the second half of 2007 were anticipated. Since that date, the unexpected events in
the banking market regarding credit availability have further reduced buyer demand and, as a result, transaction volumes during September and October to date have been significantly lower than we had expected.
NH: Consequently, we have lowered our assumptions for transaction volumes in our estate agency business for the remainder of this year and the first half of next year. Our focus is on improving operational efficiencies and on driving up fees and other revenue opportunities. Nonetheless, we expect the trading out-turn for the last quarter and our closing pipeline to be below our original expectations.
NH: Our surveying division has not been entirely immune from the recent difficulties in the banking market as a number of our key clients are operating at significantly reduced activity levels. Against this backdrop, the surveying division continues to perform satisfactorily, benefiting from our recent contract gains.
PM: Well, where’s the fresh news there?
PM: Something in the second half of the statement that you havent printed?
NH: Nothing that dramatic. There’s a mention about £1m being spent on reorganisation costs.
NH: But look at the share price this morning – down 46p at 122p.
NH: Down 27%
PM: This is a £360m firm.
NH: Well it was – more like £250m now
PM: but anyone really expect it to come out with a statement that said “In spite of the credit crunch, house price falls, freezing up of the residential market, warnings of sharp drop in consumer confidence, City bonuses getting blown away – we are doing just fine and the business remains completely unaffected.”
PM: its daft
PM:
PM: We are getting distracted here — bear with us
NH: right I am going to have to leave you all now
NH: hearing imminent announcement in S&N
PM: We are now hear that it might even be a joint bid between Carlsberg and Heineken for S&N
PM: THIS IS LIVE!!!!!!!!!!!!!
NH: it is. gotta go
NH: bye
PM: Right — Neil has had to run off to see Lina Saigol, on the M&A side here, and Jenny Wiggin, who does drinks
PM: Not “does” as in injects them or something
PM: Covers the beverages sector
PM: So going and check out S&N — you read it here first!
PM: Thanks Matthew — not surprised S&N in backwardation
PM: HUGE backwardation — quote 744/699
PM: Thanks VP
PM: Helen says the statement is out -
PM: Carlsberg A/S (“Carlsberg”) and Heineken N.V. (“Heineken”)
Statement Regarding Scottish & Newcastle plc (“Scottish & Newcastle”)
Carlsberg and Heineken note the recent share price movement of Scottish &
Newcastle.
Carlsberg and Heineken confirm that they are in discussions regarding the
formation of a consortium to make an offer for the entire issued share capital
of Scottish & Newcastle. An offer, if made, is likely to be in cash. It is
currently intended that Carlsberg will ultimately acquire Scottish & Newcastle’s
interest in BBH, France and Greece and that Heineken will ultimately assume
control of Scottish & Newcastle’s business in the UK and other European markets.
To date no formal approach has been made to Scottish & Newcastle and there can
be no certainty that an offer for Scottish & Newcastle will ultimately be
forthcoming.
A further announcement will be made in due course.
PM: On that note — I’m off
PM: Thanks for joining us. Thanks for your comments. We will be back tomorrow at 11am