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Markets live chat transcript for the chat ending at 12:14 on 19 Mar 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)

PM: Right!

PM: Sorry we are late

PM: Good morning and welcome to Markets Live – FT Alphaville’s daily markets commentary.

PM: Neil Hume is with me.

PM: Well, he’s on the phone

PM: We are hoping that everyone will calm down

PM: CALM DOWN

NH: morning

NH: total mayhem here

PM: stop

PM: It’s okay. We’ve got the answers.

PM: We can explain why HBOS got drilled this morning, along with most of the other banks.

PM: We will explain, but only when everyone CALMS DOWN.

NH: Do we??? Can we?? Explain????!

PM: Can we ‘eck!

PM: Let’s just trot through what has happened. For those who slept in or haven’t been near a trading screen.

NH: Right. Calm at the opening. People digesting Wall St’s overnight performance – Dow up 3.5%.

NH: Panic over. Crunch over, etc. Footsie had a quick run up to 5653.

NH: But a rumour started about UBS – people saying, allegedly, that CSFB had been asked by the Swiss government to prepare a rescue plan in case UBS got in to trouble.

NH: That rattled everyone.

NH: Then HBOS got whacked. Out of nowhere – bang! The stock’s down 17 per cent.

NH: Ever other bank promptly follows it down the toilet. Pandemonium breaks out.

NH: Rumours shooting in every direction.

PM: You sent a rumour round up round the FT earlier. Got a copy?

NH: Sure:

NH: UK BANKS RUMOURS ROUND UP

NH: no foreign travel for easter holidays by senior bank of england staff, supposedly means UK clearer in trouble.
- LLOY LN IR actually denied fundings probs.
- HBOS denied prob to Merril’s , but as yet, not to the mkt, still being sold.
- RBS annual report which was released last night apparently shows massive funding requirements.
- ARE UK BANKS THE SUB PRIME OF WORLD BANKING CONSIDERING THAT NONE HAVE CONFESSED TO ANY CREDIT PROBS YET, IS BARC MADE OF TEFLON ?
- UBS, Swiss Govt apparently asked CSGN to put togther rescue package for UBS in case that the crisis worsens.
- Soc Gen, BNP says no merger interest, spec thats because they have more horrors

PM: So then gradually all these things get knocked down, right?

NH: Well, yeah sort of. Such as:

NH: HBOS - CO. HAS EXCEPTIONALLY STRONG BALANCE SHEET – RTRS

NH: *DJ BoE: Talk That MPC Canceling Easter Break “Absolute Rubbish”

NH: HBOS and other banks saw their prices recovery a bit.

NH: But then it went again!

NH: Fresh set of rumours

NH: People started talking about Libor, we got this:

NH: HBOS: critical to share price movement from here will be 3 month LIBOR fixing at
1100, published c1145. 3 month LIBOR yesterday was 5.97% vs 5.96% the day
before. Fed actions should drive this lower, as liquidity is injected into
global banking system.

NH: If UK LIBOR starts to decline, these sorts of rumours about UK bank liquidity will ease, and with HBOS at GBP4.49 = 0.9x p/tangible common equity. HOWEVER, if 3month LIBOR keeps trending higher, expect these types of rumour to continue, and HBOS has the biggest wholesale funding dependency of the UK banks.

NH: And then we had this:

NH: a) HBOS has a treasury team in the Far East roadshowing a covered bond issuance
b) BoE top 3 (King, Gieve, Lomax) cancelled a business trip to the Far East to stay in London to stay close to market events given how fast things are moving
c) BoE last week arranged a CEO meeting of top 5 UK banks this Thurs. This is one of a series of meetings arranged between the BoE and the banks to dialogue through current liquidity crisis

PM: Stop a mo

PM: I’m dizzy.

PM: And i want to try this….

PM: Bickie

Reminder to readers - if you arrived late and want to stop the dialogue ‘jumping’ as you catch up, hit the ‘pause auto-scrolling’ tab at the bottom right hand corner

PM: That’s a little tip for readers — if you are busy reading something longish above and the screen keeps updating and bringing you back to the bottom you can hit cancel autoscrolling

NH: why Bickie??

PM: Oh jsut some luddite

PM: Anyway, I can’t consume all this

PM: I can actually feel myself burning out.

NH: Well this should help.

NH: It’s a level headed “fact sheet” on HBOS – put out by Jonathan Pierce at Credit Suisse.

PM: Bang it up. We can have a rest for a couple of mins while people read it.

NH: Summary
Hugely volatile moves in the share price this morning, triggered we think by continued liquidity concerns and the news reported on the wires yesterday that certain Bank of England members were staying in London to monitor financial markets. We actually see the latter point as positive, and indeed the cash markets are increasingly expecting action from the Bank of England that could significantly assist the sector in our view. 3m LIBOR is indicated to fix at about 5.96% today, largely unchanged on yesterday despite there being hardly any term liquidity available in £, $ and EUR. As we say this is partly because the cash market thinks the BOE will do something soon. This could include an adjustment in the terms on the standing lending facility, including a widening of the collateral bands and a reduction in the 100bps penalty rate which has up to now led to stigma associated with its use. We would keep an eye on BOE/MONEYOPS1 on Reuters.

NH: The specifics on HBOS though are as follows. All data is at December 2007.

• £493bn group funding o/w £215bn is retail and corporate deposits
• The remaining £278bn is wholesale funding o/w £164bn matures within one year
• The majority (c£140bn) of this <1 year funding is shorter term bank deposits, CD and CP (including conduit funding) that has been rolling and would be expected to continue to roll in the normal course of business
• We estimate there's another £25bn of <1 year maturities relating to securitisation, covered bonds and MTN's, which will be harder to roll, but where the company can replace with other retail / wholesale funds
• The <1 month wholesale maturities amount to around £50bn, but again this is largely interbank deposits and short term debt securities which has been rolling with no problems

NH: HBOS also has a sizeable liquidity portfolio on the other side of the balance sheet. For example, it has £8bn of interbank loans (which again are very short term), £17bn of CDs, and £16bn of FRNs. Then there’s another £48bn or so of debt securities. Some of these will be harder to liquidate than others, but there’s significant scope for HBOS to manage its position here (even if it has to take losses on disposal). Furthermore, if the BOE did open up the SLF, or introduce some other liquidity measure, HBOS has £8bn of non-US RMBS, some of which we think could be pledged.

We therefore agree with HBOS statements on the screen this morning that the balance sheet is in reasonable shape. That the market is nervous on liquidity issues more broadly is completely understandable - as we’ve flagged many times over recent weeks, liquidity in the cash markets is poor - but we believe the Bank of England is standing by ready to assist where necessary. Fundamentally we remain cautious on bank shares, including HBOS, given the continued uncertainty in markets and the implications on longer term asset quality of everything we are seeing now. But we felt it was worth laying down the facts relating to today’s concerns.

PM: Okay. Thank you very much for that – from CSFB.

PM: And thank you to phaedrus — who is telling us to growth up

NH: Actually, ive got some other stuff from a sales desk of one of the big banks

NH: HBOS and Lloyds are getting toasted on rumours that they are facing
liquidity
problems (originally coming out of Asia). This looks like market
manipulation.
We spoke with the investor relations of both companies both denied there
are
problems. HBOS did a capital raising last week - this required
investment banks
and auditors to due diligence - all signed off. There is absolutely no
change in
their ability to fund. Lloyds IR told us they are still funding under
Libor and
management are marketing in NY today (CEO and CFO). You decide… looks
like
total nonsense to me and despite the fact we dont like HBOS on
fundamentals

PM: market manipulation.

PM: eh

NH: just going back to HBOS

NH: seems there is some read across from Lehman figs yesterday on Alt -A mortgages

PM: Go on

NH: here’s a note from Caz

NH: like everyone else they concluded HBOS is ok, but the price, as readers note, keeps falling

NH: 3. Credit market write-downs
Further marks were taken against credit market positions. Lehman took US$5.3bn gross (US$1.8bn net) marks, the majority (US$3.0bn gross) against its mortgage positions. Lehman has a US$13.6bn Alt-A portfolio which it increased by c.US$2bn during Q1 as it saw a “great opportunity” in Alt-A pricing, probably linked to the asset sales by funds such as Peloton. Lehman noted that Alt-A values had fallen by 10% points since the quarter end. Goldman Sachs stated that most of the US$1bn mortgage write-down was against its Alt-A positions.
Lehman also referred to much greater transparency in pricing of Alt-A assets, which should reduce the proportion of Alt-A assets accounted for within Level 3 (valued without using observable inputs).
The most obvious read-across is to HBOS, which has £7.1bn of Alt-A RMBS in its treasury book. Management points to 30% subordination providing it with significant loss protection. £2.4bn of the exposure is in the trading book, so any mark-to-market adjustments would impact regulatory capital. Taking a conservative approach and ignoring subordination, the impact of a 10% fall in value is manageable as we estimate it would reduce equity tier 1 by only 5bp (Dec07: 5.7%). A 10% reduction in the banking book exposure (£4.7bn including £3.7bn in Grampian) would reduce NTAV by only 9p (Dec07: 476p).
More generally, the action by Lehman is evidence of a buyer emerging for problem assets close to current valuation levels. It lends support to the view that in some cases valuations reflect illiquidity rather than expected economic losses.

NH: 3. Other: balance sheet gearing, fair value of own debt
Lehman completed 2/3rds of its 2008 capital plan in Q1, raising US$16bn of debt. It intends to reduce the size of its balance sheet this year and increase capital through retained earnings. Its leverage ratio (assets/equity) was 31.7x end Q1, up from 30.7x end Q4.
Goldman has a similar leverage ratio (30x), but management stated on the call that it does not consider it to be a meaningful ratio - in isolation, the ratio does not say anything about liquidity or credit risk.
Both brokers recognised benefits from the fair value of own debt during Q1 (GS: US$0.3bn, Lehman US$0.6bn).
Given the expansion of credit spreads since the year end (eg. Barclays 5yr spread +126bp, RBS +148bp) we expect the UK banks to have a seen similar positive impact, which will help offset additional write-downs against credit market assets.

NH: Comment
We take comfort from the better than expected earnings and a more confident assessment of the operating environment from the US brokers.
For Barclays Capital, the H1 2007 comparative is tough (pre-tax profit +33% to £1.66bn, H2 was £675m) and despite the benefit of continued strength in certain revenue lines and the fair value benefit from its own debt, we expect H1 2008 earnings to decline YoY through additional write-downs (£1.5bn pre-tax estimated in 2008E). For the year as a whole, we expect Bar Cap profits to fall 8%. Although it is early in the period, in our view there is nothing in the US broker results to suggest a change to this estimate.
In our view, the read-across to RBS is similarly supportive of current estimates at GBM.
At HBOS, we see risk of further asset write-downs, both through the P&L (our existing estimates incorporate £250m pre-tax) and reserves (£500m post tax). But even ignoring subordination on the Alt-A book, the deterioration in pricing noted by Lehman would not result in a material reduction in either equity tier 1 or NTAV. In this context, we continue to regard the valuation (1.0x NTAV) as attractive relative to peers.

PM: Shall we launch a Save Our Banks campaign.?

PM: Apply these pixels in defence of British financials?

PM: Actually had a note from a reader this morning. He said – as a journalistic exercise — we should try and start an upbeat rumour of our own.

PM: Something completely made up – but positive – and see whether the authorities launch an investigation into who is being upbeat.

NH: maybe we could say something upbeat about Misys

Strange software outfit, seemingly controlled by US investor ValueAct Capital.

PM: Nah, no one would believe us.

PM:

NH: right on to a bit of very raw market info

NH: concerns Yell Group

NH: stock has had a massive swing this morning

NH: traded as high as 157p

NH: now down 11.1p at 135.3p

NH: rumours that the company has breached its banking covenants

NH: now

NH: Yell

NH: has a lot of debt and another downturn in trading could see it breach

NH: but I reckon this morning’s rumours and share price weakness

NH: have more to do with events in Italy

NH: shares in the Italian yellow pages company

NH: have plunged

NH: after the company issued a profits warning

NH: said it would not pay dividend

NH: and was focused on cutting debt

NH: here’s the bloomie report

NH: the company in question is called Seat Pagine Gialle

NH: Seat Pagine Gialle SpA, Italy’s largest publisher of telephone directories, fell the most since it started trading in Milan in August 2003 after saying it won’t pay a dividend and instead focus on reducing debt.

NH: Seat lost as much as 3.1 euro cents, or 23 percent, to 10.3 cents. The stock traded at 10.9 cents as of 10:21 a.m., cutting the Turin, Italy-based company’s market value to 909 million euros ($1.43 billion).

Chief Executive Officer Luca Majocchi is focusing on Italy this year, a strategy shift after betting on expansion abroad to lift sales and earnings. In August, Seat agreed to buy Germany’s Wer Liefert Was GmbH to bolster its directory business in Europe’s biggest economy. Seat is introducing new products such as Web-based directory services to attract users and clients.

NH: “The company has a good cash generation but the debt is very heavy,'’ said Niccolo Pini, who manages the equivalent of $1.3 billion at Banca Ifigest SpA in Florence. “After the declines in the stock price, I see it as a possible prey as they price would be very, very low.'’

Net income advanced to 98.4 million euros last year from 80.1 million euros the previous year, Seat said late yesterday. Sales fell 0.5 percent to 1.45 billion euros. The company had forecast 2007 sales would be “slightly'’ higher than the previous year.

NH: doesn’t bode well for Yell, that

NH: and they are in some pretty weak markets don’t forget

NH: the UK, US and Spain

PM: Ta for all that

PM:

PM: jeepers — we’d better do the wider market

NH: oh flash from Whitbread

NH: Statement regarding Travelodge press comment

There has been considerable comment in recent days regarding Whitbread and
Travelodge. Whilst there were preliminary conversations between the parties,
these discussions have now ended.

Premier Inn is the largest hotel company in the UK. Whitbread will continue to
make significant investment to grow Premier Inn in both the UK and
internationally.

Investor Relations:
Christopher Rogers, Whitbread +44(0) 20 7806 5491
Press Contacts:
David Allchurch, Tulchan +44(0) 20 7353 4200

NH: shares down 41p at £11.58

PM: That’s not news!

PM: They’ve been taking lessons from the Misys PR

NH: what on?

PM: Timely dissemination of price sensitive information

PM:

NH: right, wider market

PM: We’re of 67 now — footsie wise

NH: having traded higher at the outset

PM: 5538.3

PM: currently

PM: How high did the top 100 go at the opening?

NH: looks like it hit 5,653

PM: And have been as low as 5524 since

PM: Should put some bank prices up

HBOS (HBOS:LSE): Last: 430.00, down 50.25 (-10.46%), High: 491.00, Low: 398.00, Volume: 68.11m

Royal Bank of Scotland Group (RBS:LSE): Last: 310.00, down 16 (-4.91%), High: 337.25, Low: 304.00, Volume: 69.31m

Barclays (BARC:LSE): Last: 409.00, down 3.75 (-0.91%), High: 428.00, Low: 392.00, Volume: 63.64m

NH: once again the A&L ticker does not work

NH: so stock is down 28p at 587p

NH:

NH: right, just getting some more RAW market info in

NH: told that one of London’s big spread betting companies had increased margin on FTSE 250 stock to 75% from 25%

NH: look out for strain in the mid caps today

NH: and also hearing that a couple of the big banks are no longer accepting convertible bonds as collateral

NH:

NH: right we have had some questions about pubs below

PM: Ah, yes,

NH: which brings us nicely on to Mitchells & Butlers

PM: share price being absolutely killed this morning

NH: although it has recovered a bit

NH: stock hit 284p earlier

NH: now down 28.7p at 323.75p

PM: big fall

NH: Lehman Brothers responsible for the damage

NH: although there have also been the predictable rumours that Robert Tchenguiz is in trouble

NH: and has been forced to sell his 20%+ stake

NH: but aside from a print of 15m shares, there have been no large chunks of M&B stock changing hands this morning

NH: so I think we can discount that rumour for now

PM: and what about this note

PM: i hear it is v v aggresssive

NH: it is

NH: and very bearish

NH: analyst Julian Easthope, who used to be at UBS where he also covered the leisure sector

NH: he has slapped an underweight rating on the stock and a 235p target price

NH: and said that M&B needs a capital injection

PM: whoa!

PM: But hang on a minute isn’t this company supposed to be in takeover talks

NH: Well, Punch Taverns have made an indicative proposal but after reading this note its difficult to believe that shareholders will back the deal

PM: right let’s have a look at Mr Easthope’s assumptions

NH: OK

NH: he reckons the results of M&B’s strategic review, which are due to be announced on 20 May, will be that the company

NH: cuts its dividend

NH: and says it needs a capital injection

PM: ouch

PM:

NH: says the parent company is short of cash following its decision to close its disasteerous hedging positions

NH: it’s all quite complex

NH: but Mr Easthope reckons by the end of the year M&B will have come close to using its £300m revolving credit facility

NH: and will need a capital injection

PM: no wonder

PM: …there were stories around at the weekend about M&B talking to hedge funds about a cash injection

PM: this is looks really quite serious

PM: I think you should paste some of the note

NH: OK

NH: Mitchells & Butlers refinanced in September 2006 with a large tap on its
securitisation. This debt is protected with cash withdrawals restricted. With current
weak trading, we expect the dividend from the securitised estate to fall 20% to
£47m in 2008E. With the parent company cash consumptive from the investment
in the Whitbread estate, £24m pension payments and from weak trading, we
believe the group could ill afford the £386m increase in debt associated with the
hedge closure. Our analysis suggests that it is close to using its £300m revolving
debt facility by end 2008.

NH: We believe Mitchells & Butlers is in need of refinancing following closure of the £400m hedge facility. This is an issue due to the group structure with the majority of cash flows tied up in the securitisation that has restricted covenants governing distribution to the parent company.

The parent company has been left with £600m of pro forma debt following the
hedge closure, and also has to finance pension payments and the dividend. With the only assets outside of the securitisation effectively being the acquired Whitbread pubs that are cash consumptive owing to the investment programme, the £108m headroom in the parent company could be tested if current weak trading persists.

NH: We believe this will be a key issue for management to consider when it finalises its
strategic review at the end of May, and we believe it has six options:

Cut capex – this is the heart of growth in the company and a material reduction would
be detrimental in the long term, in our view.

Cut the dividend – the group has already paid £40m in 2008 (2007 final) but could
save cash on the c£18m interim. This is a small amount relative to the sentiment if it did cut – so we believe a cut of the final dividend is more likely.

NH: Refinance – with an equity injection either from existing equity shareholders or as
suggested in the Sunday Telegraph on 16 March from private equity.

Sell pubs – we believe it would be difficult to make large-scale disposals of pubs in the current environment. Most of the cash would end up with the securitised group if the disposals came from this area, while cash needs to get back to the parent company.

We believe the disposal of the Whitbread pubs could be an option that would resolve
the issues as long as a buyer could be found.

Trade out of the situation – not an easy option in the current economic environment.

Sell the company – the company has announced it has received several approaches
including one from Punch Taverns. However, given the restricted covenants and need to refinance £600m of debt immediately plus the costs of acquisition and the cost of
refinancing the pension scheme – we believe a sale in the current market environment
would be difficult and a full price hard to achieve.

The most likely option, in our opinion, would be a capital injection with a dividend cut.

PM: that is bearish — Should add that Helen has done a separate post on this on the AV home page

NH: and I am hearing that M&B are furious about this note

NH: “defamatory and factually incorrect”, apparently

PM:

PM:

PM: We’ve got fight!

NH: seems they are talking to their advisers about issuing an official statement on RNS

NH: to clarify the strength of the business and the banking headroom they have.

NH: also trading remains strong and the company is generating sufficient cash to pay down debt

NH: anyway it has hit the rest of the pubs sector hard

Punch Taverns (PUB:LSE): Last: 507.00, down 40 (-7.31%), High: 554.00, Low: 485.00, Volume: 4.30m

Enterprise Inns (ETI:LSE): Last: 355.25, down 23.75 (-6.27%), High: 384.25, Low: 350.75, Volume: 4.25m

NH: Punch and Enterprise both have high levels of debt secured against their pubs

NH: in the current environment I am not sure this is a place you really want to be

PM: Well thank you for all that

PM:

PM: ive just been sent a v v funny correction from the Guardian

PM: The chairman of the Federal Reserve is Ben (not Paul) Bernanke (Sold for just $2 a share - the bank worth $140bn last week, page 1, March 17).

PM: They will be correcting that correction pretty soon i guess. When was BS worth $140bn???

PM:

NH: Ah, got a note from MF Global on the Lehman note. this could turn into a real dust up

NH: ***POST MANAGEMENT CONVERSATION***
* Spoke to management regards stock fall (recovered some what from initial 17%
fall this morning). They are talking to advisers about issuing an RNS to clarify
the strength of the business and the banking headroom they have
* Lehman suggesting this morning that the business likely to need a cash
injection to fund the divi and cash needed to plug the hedge closure (GBP386m loss
announced in Jan)
* Management told me the Lehman note is “defamatory and factually incorrect”.
They argue that the business is: NOT showing signs of slowdown in revenue; there
is sufficient debt headroom and undrawn banking facilities (GBP300m revolving
facility not being fully used at present); tax rebate on hedge has not been
factored (likely to reduce group tax charge this year); Whitbread estate they
acquired is HIGHLY cash generative with minimal debt
* Overall, MAB believes that even if they had no headroom in debt financing they
are producing sufficient cash not to have to worry in this environment. Trading
remains robust despite the state of the market
* We see this as a BUYING opportunity. 600p TP

PM: Excellent — great fight!

PM:

PM: Just got an update on the guardian Correction

PM: The market capitalisation of Bear Stearns was misreported in both the headline and the text of the news story, Sold for just $2 a share - the bank worth $140bn last week, page 1, March 17. At its peak it was worth about $25bn and last week’s highest value was almost $7.5bn. At one point before the credit crunch started - not last week - its share price had been $140, and this figure became confused with market capitalisation as the story unfolded and was rewritten for four editions during Sunday night.

NH:

NH: some more doom and gloom

NH: results from Next

PM: Good or bad — well bad i guess

NH: results OK

NH: outlook statement - V poor

NH: stock off another 66p at £11.13

NH: market seems to have given hope that Next will be able to revitalise its brands

NH: and like the rest of the sector, investors are just avoiding the stock now

NH: actually the outlook statement is really, really depressing

NH: predicting LfL of -4 to -7% this year in the main retail chain

PM: oh no!

NH: and check this

NH: the Directory business – the best performing part of Next hitherto –

NH: even that is beginning to slow

NH: Next expecting sales growth in this division to be in 0-2% range this year

PM: I presume analysts are trimming forecasts on the back of that

NH: oh yes

NH: this is from Jonathan Pritchard at Oriel

NH: Group pre tax profits are inline with expectations at £498m with earnings of 168.7p and a dividend of 55p largely as expected, however this is a damning outlook statement.

NH: Despite some progress made with the ranges, Next management is flagging a very weak
retail environment that they are predicting will deliver LfL of -4 to -7% this year.

Even the better performing Directory business, which is being helped by the move to the
internet has given up the ghost and sales growth is predicted in the 0-2% range.

NH: With this sort of sales performance not even the Next management can protect the
operating margin which is scheduled to drop by 100bps.

Despite low expectations, we believe that forecasts for the year to January 2009 will fall
this morning, our best guess is from £495m to £450m or 178p to 162p of earnings.

This will unsettle investors and we expect Next (REDUCE) share to be weak but for this
caution to also rattle M&S (SELL) which will be seeing the same pressures.

NH: and this is from Cazenove

NH: Headline PBT of £495.8m (before £2.3m of unrealised forex gains) compares with our estimate of £497.5m and an indicated range of £492m to £502m. The dividend is raised from 49.0p to 55.0p.

- Next Retail EBIT was £319.9m against £316.6m (Caz. est: £319m), with full year lfl sales from ‘Mainstream’ stores down by 3.2%.
- Directory profits increased from £143.9m to £164.4m (Caz. est: £162m), with sales ahead by 3.3% over the year.

- Next is not giving a current trading update in front of the scheduled Q1 announcement, but it has made clear that the Q1 comps are notably tougher than in Q2, due to the early Easter and the likely relative weather patterns. This is reflected in a guided H1 Retail lfl decline of between -4% and -7%. Our full year estimate of £490m had been based on -2% lfl for Retail and growth of 1% in Directory sales: if we now assume -4% for Retail, we would look to downgrade by around £30m including lower guidance on Sourcing and Ventura profits. £460m would give EPS of around 159p.

- An FY09E PE of around 7x suggests that the brand revival bull story has been all but totally discarded. However, on the basis that management has already effected a range of initiatives without being able to arrest what looks like a fourth consecutive year of declining lfl sales, in our view there is a risk that Next fails to participate in an eventually improving retail climate.

NH: and before we finish on Next

NH: there is a really interesting note in the results

NH: over the past 8 years next has bought back 46% of its issued share capital at an average price of £11.25

NH: which rather begs the question do buy backs work???

PM: jeepers — what a depresses stat

NH:

PM:

PM: Thanks for posting below

NH: right, got a LIBOR fix for you money market junkies out there

NH: 3-month sterling is 5.9800 vs 5.97250

NH: no respite, sterling still ticking higher

NH: but just look at the dollar libor

NH: overnight fix is 2.64750%, vs 3.38125%

NH: meanwhile 3-month dollar is 2.59875%, vs 2.54188%

PM: hmmmm — v v difficult to read the significance of that

PM: Did you see the Japanese basis swap stuff that Helen did late yesterday

NH: i saw it, have to confess I was struggling to understand it

PM: Yeah, well so was i but dont tell her

NH: only a poor market reporter

PM: http://ftalphaville.ft.com/blog/2008/03/18/11687/the-america-premium-this-could-hurt/

PM: recommended read

NH:

PM: Anything else moving??

NH: Misys

NH: stock has given back half of yesterday’s gain

NH: quite a few analysts reckon the deal to merget its healthcare business with a US rival called Allscripts isn’t a good one for shareholders

NH: they reckon Misys is giving away too much value

NH: and that the real reason the shares made progress yesterday was because of relief that the company did not issue a profits warning

PM: Hmmm. can we have a look at these notes

NH: and they are also still trying to get their head round the share placing

NH: for those of you who missed it

NH: a really odd one this

NH: raised £75m at a 20% premium to the opening price

NH: stock was offered to all shareholders

NH: unsurprisingly most rational folk said no thanks, coz they could buy it more cheaply in the market

NH: but the deal was underwritten by the company’s biggest shareholder

NH: which is a US private equity group

NH: that is slowly taking control of the company

NH: Called ValueAct

NH: one of its executives is already a non exec and Misys chief executive is a former employee

NH: anyway enough of that

NH: here are the note

NH: MSY.L, Misys (161p) /Strategically sensible, but limited upside from here
Morgan Stanley & Co. International plc
James.Dawson@morganstanley.com, Patrick.Standaert

NH: Misys merges its Healthcare business with Allscripts: Positives: 1) Solves healthcare low growth issue – Misys raise medium-term group growth target to 7-9% from 2-4%; 2) Cost synergies of $30m look well achievable; 3) ValueAct fully subscribing to the £75m placing at 175p; and 4) Decent 3Q results, and FY08 outlook in line with forecasts.

Negatives: 1) EPS dilutive in FY09/FY10 due to higher tax; 2) Value paid away to Allscripts shareholders; 3) Dividend dropped from FY09

NH: another long-term problem, shifting from owning 100% of a low-growth business focused on the mature Practice Management market to controlling a 54.5% stake in a more rounded, higher growth asset with a decent EMR product in an under-penetrated market. The rationale makes sense to us.

…But we see little more upside after the bounce: Misys stock saw a good bounce on the deal and the fact that 3Q was solid despite Banking worries. We see little more upside in the near-term – the deal looks to be dilutive, and means Misys trades in line with the Euro software group at an
09 PE of 13.4x Also, while Banking is holding up in the near-term, it’s tough to rule out any impact

NH: Value shift towards Allscripts shareholders: Currently, we think the deal looks more a win for Allscripts who receive $330m cash, and a 45.5% stake in the enlarged “NewCo” which we value at around $1.35bn, giving a value to Allscripts of c$944m, well above the pre deal valuation of
$500m.

Misys pays away $330m and injects its Healthcare asset (valued by the market at
c$500m) and gets 54.5% of NewCo, worth c$735m – overall value leakage of $95m. We’d note though that the real long-term success or otherwise of the deal will depend on the profit growth and market rating that this new business can attract.

NH: and this is from Credit Suisse

NH: Misys announced on Tuesday the merger of its health care division with Allscripts, a US-based clinical software provider.

Misys will pay $330m to acquire 54.5% of the combined entity. The deal is expected to be financed by both debt and equity.

The equity component of the deal is to be generated by placing 43m shares at 175p, a 23% premium to Monday’s close. This placement has been guaranteed by Valueact and should generate £75m.

NH: • Synergy targets appear achievable: Management expects to benefit from cost synergies of $25-30m annually and $15-20m in the first year. The annualised cost savings constitute less than 5% of the cost base of the combined entity, and we believe this target remains achievable.

• Deal arithmetic doesn’t add up: Misys healthcare has a larger revenue base and better profitability than Allscripts and should
therefore have an EV valuation at least equal to that of Allscripts, in our view.

However, Misys has acquired only 54.5% of the combined entity for an outlay of $330m. Even if we assume synergy benefits adding up to $200m to the overall value of the combined entity, the $330m payout from Misys to Allscripts shareholders outstrips the gain from synergy benefits, in our view.

• In essence, Misys has acquired 54.5% of Allscripts in exchange for 45.5% of Misys healthcare and $330m in cash. Allscripts market cap at Monday’s close was circa $500m, so 54.5% of this should be only around $275m. Misys in effect pays $330m
and a 45.5% stake in Misys healthcare for acquiring this.

• Interim results broadly in line, FY guidance positive: Misys reported its Q3 ‘08 interim results (period ending February ‘08) on Tuesday. Q3 headline revenues grew by 9% yoy to £114m. ILF revenues grew by 35% yoy to £22m. The operating margin was 14% giving an operating profit of £15m. Misys guided to FY ‘08 revenue growth of 2%-4%, which translates to revenue range of £479-488m. The management also guided to an operating margin of circa 15%.

NH: • Downgrade to Neutral, lower TP to 190p: In our view, although the strategic rationale for the deal remains strong, the
premium paid more than offsets any potential value from synergy benefits. We believe that the 14% rally from the stock is
largely due to the vote of confidence from Valueact. We lower our target price to 190p to reflect the excess premium paid to
Allscripts shareholders and downgrade our rating to Neutral.

PM: Thanks for all that Neil

PM: I think we’ve done enough Misys for now!

PM:

PM: To Carlisle capital corp for a mo….

PM: V V strange statement coming out

PM: Got flashes on the screen saying it is insolvent and that shareholders will get nothing

PM: But look at this that Helen has jsut sent over:

PM: Carlyle Capital Corporation Limited (“CCC”) (in compulsory liquidation)

Alan Roberts, Neil Mather, Chris Morris and Adrian Rabet as Joint Liquidators (the “Liquidators”)

The Netherlands Authority for the Financial Markets in the Netherlands has indicated to the Liquidators that it is not to suspend trading in the shares of CCC at this time.

The Liquidators wish to repeat the information provided yesterday the 18th March 2008 that there is legal uncertainty regarding the title to any shares transferred after the placing of CCC into compulsory liquidation on the 17th March 2007 and that such transfers may be considered void. Persons transferring or wishing to transfer shares in CCC should obtain legal advice before effecting any purchase or sale of CCC shares on Euronext Amsterdam.

PM: legal uncertainty regarding the title to any shares transferred after the placing of CCC into compulsory liquidation

PM: ?????????

PM: No uncertainty over whether they are bust tho!

PM: here’s the headline snaps

PM: CCC SAYS LEGAL UNCERTAINTY FOR TITLE TO SHRS MOVED AFTER MAR 17
*CARLYLE CAPITAL HAS EXTREMELY LIMITED CASH ASSETS: LIQUIDATOR
*CCC SAYS HOLDERS UNLIKELY TO RECEIVE ANY DISTRIBUTION :CCC NA
*CARLYLE CAPITAL CORP. HOLDERS UNLIKELY TO GET ANY DISTRIBUTION
*CCC CONSIDERED BY LIQUIDATORS TO BE INSOLVENT :CCC NA
*CCC HAS ‘EXTREMELY LIMITED CASH ASSETS’ :CCC NA
*CCC INVESTED PRIMARILY IN RMBS :CCC NA
*CARLYLE INVESTORS UNLIKELY TO RECEIVE MONEY, LIQUIDATOR SAYS
*CARLYLE CAPITAL CORPORATION LTD IN COMPULSORY LIQUIDATION
Carlyle Capital Corporation Limited ('’CCC'’) (in compulsory
*CARLYLE HAS INSUFFICIENT ASSETS TO MEET LIABILITIES :CCC NA
*CARLYLE CAPITAL HAS SUBSTANTIAL LIABILITIES, LIQUIDATOR SAYS
*CARLYLE CAPITAL HAS SUBSTANTIAL LIABILITIES :CCC NA
*CARLYLE CAPITAL LIQUIDATOR GIVES PRELIMINARY ASSESSMENT

PM:

NH:

NH: before we go just had a really interesting email from a banks analyst

NH: his point is that it is really difficult to get people to buy equities when the debt instruments are telling the whole world there is a problem

NH: and he notes that

NH: Before the start of March, HBOS was performing broadly in line with the other banks. HBOS now trading at 233bp, that is 60bp above next closest peer (RBS).

PM: Hmmm. Tis worrying

NH: news flash

NH: UK bank in positive territory

NH: hang on update

NH: two banks

Barclays (BARC:LSE): Last: 416.25, up 3.5 (+0.85%), High: 428.00, Low: 392.00, Volume: 69.10m

Lloyds TSB Group (LLOY:LSE): Last: 419.75, up 3.25 (+0.78%), High: 426.00, Low: 401.75, Volume: 34.93m

PM: I give up

NH: i am exhausted

PM: Yeah, were done

PM: Lunch does call! that you coffin dodger

NH: too much info this morning, me head is in meltdown

PM: Thanks for all the comments — sorry if we missed requests

PM: Thanks for joining us

PM: We will be back tomorrow, refreshed, at 11am

NH: bye

PM: Oh — and apols about the stuck price box earlier — the City INdex bos

PM: We have been getting v v high traffic and the Assanka had to turn off the live updating briefly

Cracking little software shop who built FT Alphaville

PM: Seeya

PM: late bonus:

PM: Mitchells & Butlers plc (”Mitchells & Butlers” or the “Group”)
Mitchells & Butlers Statement
——–

Mitchells & Butlers has noted comments from an equity analyst that capital
investment needs to be cut to retain the dividend payment and that the Company
could require a capital injection.

These comments are without any basis and Mitchells & Butlers categorically
refutes these suggestions.

The Board would make the following points:

1. The Group has borrowing facilities to meet all of its financial requirements.
The company has no requirement for any capital injection to meet its existing
funding needs.

2. It has fully adequate headroom against its facilities and this position is
expected to improve further as the Group continues to generate strong cash
flows.

3. The Group has all the necessary funding in place to support its existing
dividend policy and its investment programme.

4. Trading in the business continues to be resilient, with buoyant food sales,
strong drinks market share gains and continued improvements in productivity. As
a result, we expect to report a robust performance at the interim results in
May.

As stated in January, the Board expects to announce the conclusion of the
strategic review by the end of May.

For further information, please contact:

Investor Relations:
Erik Castenskiold 0121 498 6513

Media:
Kathryn Holland 0121 498 4526
James Murgatroyd (Finsbury Group) 0207 251 3801

PM: Price has perked up slight — down 19.5p at 333p