Markets live chat transcript for the chat ending at 12:05 on 5 Jun 2008. Participants in this chat were: Neil Hume (NH) Paul Murphy (PM)
NH:
bye
PM:
hello
PM:
welcome to Markets Live
PM:
This is FT Alphaville’s daily markets chat.
PM:
But it is a bit weird
PM:
Cos Neil is not actually here
PM:
Unless he has logged in from a remote location
PM:
We’re all over the shop this morning.
PM:
I was missing a nicotine patch.
PM:
Neil had to go to “a meeting.”
PM:
And hasn’t got back yet
PM:
DS — careful!
PM:
For those of you who dont know…
PM:
DS is referring to the fact that
PM:
Princess Beatrice is joining the FT on a work placement.
PM:
No big deal there. — and no comment from me on the matter
PM:
Can I please ask that people avoid commenting on the matter.
PM:
Otherwise this chat will be closed down.
PM:
Simple as that – this is a serious warning – I will have no option.
PM:
We could end up in the Tower
PM:
As for the live prices box to the right
PM:
yes, we do seem to have a problem
PM:
getting it looked at
PM:
PM:
Got an interest rate decision later
PM:
We can ask for the Alphaville consensus – which I believe has an unblemished record
PM:
i will go for NO CHANGE
PM:
liek everyone else i suspect
PM:
Here’s some background stuff on the threat of inflation
PM:
From Philip Shaw at Investec:
PM:
How high will UK inflation rise?
Our new analysis suggests that inflation is set to rise sharply from its already elevated level of 3.0%. We are forecasting that various factors, including higher gas and electricity prices, will push CPI inflation up to 4.2% later this
year, making it difficult for the MPC to cut rates again this year. Inflation seems set to fall sharply next year though, and this should enable the committee to bring rates down to 4.25% over the course of next year.
Our new analysis suggests that inflation is set to rise sharply from its already elevated level of 3.0%. We are forecasting that various factors, including higher gas and electricity prices, will push CPI inflation up to 4.2% later this
year, making it difficult for the MPC to cut rates again this year. Inflation seems set to fall sharply next year though, and this should enable the committee to bring rates down to 4.25% over the course of next year.
PM:
We have reworked our UK inflation forecasts. This follows April’s appalling
numbers which showed the CPI measure surging to 3.0% and the increasing
likelihood that the main power companies are about to raise their domestic
energy tariffs. On the basis of a 15% increase in gas and electricity prices over
Q3, we now expect inflation to climb above 3.0% for eight months (starting in
July) and to peak at a rate of 4.2% in September. This would force Mervyn King
to write three letters to the Alistair Darling to explain why inflation is so far above
the target (the Governor has to put pen to paper every three months if inflation
under or overshoots the 2% by more than 1%).
numbers which showed the CPI measure surging to 3.0% and the increasing
likelihood that the main power companies are about to raise their domestic
energy tariffs. On the basis of a 15% increase in gas and electricity prices over
Q3, we now expect inflation to climb above 3.0% for eight months (starting in
July) and to peak at a rate of 4.2% in September. This would force Mervyn King
to write three letters to the Alistair Darling to explain why inflation is so far above
the target (the Governor has to put pen to paper every three months if inflation
under or overshoots the 2% by more than 1%).
PM:
.. It’s not my fault – Gov. The factors pushing inflation up are chiefly utility tariffs
(impending increases plus reductions last year), petrol costs, food prices and
miscellaneous effects of the weakness in the pound (down by 12% since last
summer’s peak). Clearly, these are factors that are impossible to foresee with
any accuracy and out of the control of the MPC, or indeed the government. It is
possible that the increase in tariffs is more modest (a 15% rise pushes inflation
up by 0.5%) or that oil prices weaken over the next few months, which of course
would lower the inflation profile compared with our forecasts. However, the main
point is that inflation is set to rise sharply from levels that are already
uncomfortably high. Thereafter our forecasts are driven by i) the slow economy
bearing down on services inflation, ii) no significant increases in private sector
pay deals, and iii) an easing of the worst of this year’s inflationary effects.
Accordingly, we expect inflation to fall sharply through the course of next year to
a level slightly below 2% by Q3 next year.
(impending increases plus reductions last year), petrol costs, food prices and
miscellaneous effects of the weakness in the pound (down by 12% since last
summer’s peak). Clearly, these are factors that are impossible to foresee with
any accuracy and out of the control of the MPC, or indeed the government. It is
possible that the increase in tariffs is more modest (a 15% rise pushes inflation
up by 0.5%) or that oil prices weaken over the next few months, which of course
would lower the inflation profile compared with our forecasts. However, the main
point is that inflation is set to rise sharply from levels that are already
uncomfortably high. Thereafter our forecasts are driven by i) the slow economy
bearing down on services inflation, ii) no significant increases in private sector
pay deals, and iii) an easing of the worst of this year’s inflationary effects.
Accordingly, we expect inflation to fall sharply through the course of next year to
a level slightly below 2% by Q3 next year.
PM:
.. Interest rate impact. Our new analysis has not altered our perception of today’s
MPC announcement – the Monetary Policy Committee is very likely to leave the
Bank rate at 5.0%, which is also overwhelmingly the consensus view. Looking
ahead though, high levels of inflation mean that it is going to be very difficult for
the MPC to cut rates again this year, both in terms of its general credibility and
the fear that there could be a spillover into pay deals (note today’s survey by
pay researchers IDS, suggesting that there has been a rise in pay settlements
recently). Equally with the economy continuing to weaken, we cannot see rates
rising, an outcome with which the yield curve is still flirting. Our view then is that
the Bank rate will remain on hold at 5.0% for the rest of the year. If we are
correct about the better medium-term inflation outlook, there should be clearer
room for lower rates next year, and indeed we expect the committee to begin to
ease in Q1 2009, and we judge that rates will finish next year at 4.25%.
MPC announcement – the Monetary Policy Committee is very likely to leave the
Bank rate at 5.0%, which is also overwhelmingly the consensus view. Looking
ahead though, high levels of inflation mean that it is going to be very difficult for
the MPC to cut rates again this year, both in terms of its general credibility and
the fear that there could be a spillover into pay deals (note today’s survey by
pay researchers IDS, suggesting that there has been a rise in pay settlements
recently). Equally with the economy continuing to weaken, we cannot see rates
rising, an outcome with which the yield curve is still flirting. Our view then is that
the Bank rate will remain on hold at 5.0% for the rest of the year. If we are
correct about the better medium-term inflation outlook, there should be clearer
room for lower rates next year, and indeed we expect the committee to begin to
ease in Q1 2009, and we judge that rates will finish next year at 4.25%.
PM:
PM:
We could have a look at Bradford & Bungle
PM:
which has gone ballistic this morning
PM:
Price is currently up 4.5p at 73.25p
PM:
But did reach 76.75 earllier
PM:
Here’s a rather negative take from Cazenove
PM:
Well worth a read i think
PM:
The shenanigans over its rights issue to one side, Bradford & Bingley has provided the first profit warning from banks caused by the slowing UK economy. Hitherto, company statements have referred to still favourable credit conditions and it is fair value adjustments to trading or treasury assets that have hit earnings.
PM:
B&B is yet another example of how when credit quality deteriorates, the impact on impairment is dramatic. We now expect an impairment charge for B&B in 2008E more than 20x larger than 2007; as the first profit warning on impairment, the risk is that our estimate will rise still further. B&B may be an exaggerated example but in the US, where the economic slowdown is more advanced, the banking system has seen the quarterly impairment charge rise fourfold from the
run-rate of a year ago.
run-rate of a year ago.
PM:
Estimates do not reflect a recession….
We have continued to raise our estimates for impairment particularly for 2009E and the cumulative charge for the six domestic banks is now 63% higher than two years earlier in 2007. Comparison with the recession of the early 1990’s is unfavourable when the impairment charge rose eightfold over four years; strikingly it doubled after a fourfold increase in the first year of deterioration (1989), i.e. similar to the US experience in Q1 08.
We have continued to raise our estimates for impairment particularly for 2009E and the cumulative charge for the six domestic banks is now 63% higher than two years earlier in 2007. Comparison with the recession of the early 1990’s is unfavourable when the impairment charge rose eightfold over four years; strikingly it doubled after a fourfold increase in the first year of deterioration (1989), i.e. similar to the US experience in Q1 08.
PM:
There are differences that prevent a straight comparison with the early 1990s, not only with the economic background, but also with the composition of banks’ earnings, which are more diversified both by product (i.e. non..lending income) as well as by geography. Yet we feel the general point is valid. When impairment deteriorates, it happens with a severity that is not yet reflected in our, or consensus, estimates.
…
…
PM:
Despite the recent poor performance, we do not see a sustained turnaround in sentiment. While the completion of the RBS rights issue (i.e. once the rump is placed) should help the technical position, there is the prospect of additional fundraising elsewhere in the sector as well as the digestion of the £4bn HBOS issue.
PM:
Near term, the Q2 results from the US investment banks will provide another data point but recent estimate revisions are not encouraging. Further out, as necessary conditions for a turning point in the sector relative, we see the need for greater clarity on both the value of credit assets and the severity of the economic slowdown. To date much feels unprecedented, though we are hopeful that while the former should emerge through the second half of this year, the fate of the economy may take longer to assess.
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:
of course
PM:
BBB is the subject of an FSA probe according to the Telegraph.
PM:
By Philip Aldrick and Katherine Griffiths
Last Updated: 11:46pm BST 04/06/2008
Last Updated: 11:46pm BST 04/06/2008
The Financial Services Authority is investigating potential insider trading in Bradford & Bingley stock in the days leading up to the buy-to-let lender’s shock profits warning.
FSA insider trading probe into Bradford & Bingley slide
B&B shares slumped 24pc to 67p on Monday after its profits warning
B&B shares fell 8.5pc in late trading on Thursday, before rallying a little, and 7.5pc again at the end of play on Friday. At the time, the board was holding emergency talks to bail out the bank with private equity firm Texas Pacific Group. Bankers said the collapse ahead of Monday’s announcement suggested possible insider trading.
PM:
The FSA confirmed it was looking into the issue, saying: “As you’d expect, the FSA does monitor sharp movements in the share prices.” B&B shares slumped 24pc to 67p on Monday after its profits warning, TPG’s £179m cash injection for a 23pc stake, and the overhaul of its original 82p-a-share rights issue.
The regulator is keeping a close eye on unusual movements in bank shares after short-sellers planted false rumours about HBOS earlier this year, causing an 18pc collapse in the stock and sparking fears for financial stability.
PM:
The West One set should not think they are beyond the reach of Canary Wharf’s finest
PM:
Sam did some stuff on FSA Phishing earlier
PM:
Quite hilarious — that’s on the AV home page
PM:
Apparently people impersonating the FSA making cold calls to nervous brokers
PM:
HBOS is going higher this morning
PM:
Shares are up 15.75 at 356
PM:
After yesterday’s heavy selling
PM:
that stock is going to be upand down like a yoyo over the next six weeks or so
PM:
80p headway above the rights — currently
PM:
PM:
Neil allegedly on his way 
PM:
Hoping to get Samuel Beckett on the show soon
PM:
RBS a big talking point this morning
PM:
Shares up another 7.5p to 257p this morning
PM:
Unseemly rush to upgrade RBS – everyone has decided that now the rights is obviously going thru it is suddenly the safest bank in Britain.
PM:
For investors, that is
PM:
For depositors that remains the Crock
Readers may also know this former bank as Northern Rock.
PM:
This is from Citi on the subject
PM:
rather some up the general view
PM:
Valuation now appears compelling – The 25% drop in the share price since the rights issue announcement (22 April 2008) has pushed the 2009E price to tangible book ratio to 1.2x, a level that looks attractive versus a sustainable RoE of c16%. Rather than concern over the sustainability of returns, we believe the collapse in rating reflects fears over the sustainability of tangible book value itself. Despite a disappointing level of disclosure post ABN, we argue that tangible book value should prove more resilient at RBS than most of it peers.
PM:
Tangible NAV per share relatively insensitive to higher impairment losses – Having already announced aggressive credit market write-downs, the major threat to book value estimates arises from meaningfully higher loan impairments. Our sensitivity analysis shows that doubling loan impairment losses would reduce 2009E book value from 200p to 178p (vs. 186p in 2008E) with an early 1990s-style worst-case scenario still leaving book value at 170p
PM:
Disposal of RBS Insurance is not mission critical – Although the sale of RBS Insurance is a core part of the announced disposal programme, we do not believe RBS needs to be a forced seller. Even if RBS decided not to sell RBS Insurance – which we estimate would generate a c£2bn capital benefit – we believe it can still achieve its Equity Tier 1 ratio target of >6%.
We upgrade from Hold (2M) to Buy (1M), price target 300p – With 2009E tangible book value per share of 200p likely to prove resilient and the bank comfortably generating an RoE in excess of c15% despite downgraded earnings estimates, we set a target P/B ratio of 1.5x.
We upgrade from Hold (2M) to Buy (1M), price target 300p – With 2009E tangible book value per share of 200p likely to prove resilient and the bank comfortably generating an RoE in excess of c15% despite downgraded earnings estimates, we set a target P/B ratio of 1.5x.
PM:
So the Save Fred Campaign is going well
PM:
Barclays bounced as well — up 7.25p at 360p
PM:
PM:
Of course, just cos the banks have bounced doesnt mean the market overall is looking pretty
PM:
FTSE 100 currently down 16p 5954
PM:
that reflects the weakness of the miners this morning
PM:
Falls of 4 to 2 % typical across the ssector
PM:
PM:
Guess what??
PM:
Neil has arrived
PM:
Just rushed in from his “meeting”
PM:
And i think he might have actually sourced a bit of news
PM:
But we will hold while he boots up his machine
NH:
morning all
NH:
been on a news gathering mission
NH:
got some interesting stuff on RBS
NH:
about the rump
NH:
looks like it won’t be huge
NH:
that at least is the vibe
NH:
and probably explains why the shares have been rallying hard in the past couple of days
NH:
obviously the upgrades from Morgan Stanley and Citi have helped
PM:
So what sized rump do we think?
NH:
something around 5-10%
NH:
probably the low side of that
NH:
and it would be placed Monday i guess
NH:
5% of £12bn should not be too much a problem to shift
NH:
think the whole RBS rights issue has been interesting
NH:
the market tried to stress test it
NH:
failed and now it rallies
NH:
mind you the reason they could stress test it is the length of time it takes to complete these cash calls
NH:
5wks
NH:
that time period was designed for the days when the subscriptions used to be collected in a post bag
PM:
That is very true
NH:
why could it not be three weeks
NH:
with Crest and all the other electronic settlement stuff
NH:
that would certainly help the issuers
PM:
Still plenty of retail holders in the likes of HBOS and BBB tho
NH:
yeah, but your head would have to be in the sand if you did not hear about a £12bn rights issue
NH:
fact is 5 wks gives the boys in Mayfair the chance to cause havoc
NH:
anyway, enough of that
PM:
West One set
NH:
what have I missed
PM:
Oh, we just chatted about banks
PM:
BBB
PM:
The likely rate decision
PM:
No one expects a change
PM:
PM:
how about housebuilders — a mess again earlier, but have since bounced
NH:
I think that’s down to the Bellway statement
NH:
which is not good by any stretch of the imagination
PM:
Said Spring did not arrive
NH:
but it is not the disaster some were expecting
NH:
nonetheless broker are cutting forecasts
NH:
but this has given the space for a dead cat bounce for the sector
PM:
Shares in Bellway up 21p at 615p currently
NH:
even Barratt Devs are up
PM:
That’s a very bouncy dead cat
PM:
Barratt Developments (BDEV:LSE): Last: 148.50, up 4.75 (+3.30%), High: 150.25, Low: 135.00, Volume: 6.76m
NH:
got a good summary from Kaupthing on this
NH:
BELLWAY ~ relatively speaking its IMS update (y/end is July) reads well and trading is faring somewhat stronger than the peers, but nonetheless it is still fagging profits lower as a consequence of sliding sales volumes and squeezing margins. Notes that regionally Thames gateway (low price points here) and Scotland are holding best, the North and Midlands generally the poorest. Overall it reports a 31% fall in net reservations since Feb1 (industry is 40% plus) and a forward order book now 16% lower at £706m. Its previous guidance on volume was -5 to 10% and is now -10 to 15% whilst on margins its ‘up to 100 bips lower’ is now 100 -150. Forecast wise this suggest 07/8 will be c£180-185m/eps c112p, about a 10% downgrade. At present I have an 08/9 estimate of £150m/96p and obviously this has vulnerability in current markets. balance sheet is also relatively strong, gearing predicted to be “comfortably” below 30%. Annualised 08 rating is 6x PE, 7.6% yield and 0.6x price/book. One of the safer stocks to won in the sector – if you want to own any that is.
PM:
And here’s a interesting note from ABN on the sector as a whole
NH:
ah this one is pretty bearish though
PM:
it is
PM:
With a continuing collapse in new sales, acceleration in cancellations, outgoing cash flow commitments and unsustainable levels of debt funding, the UK house builders are likely to begin issuing additional equity in the coming weeks/months. We recommend investors seek transparency from management
teams on land bank composition, land-buying commitments and anticipated future cash flows before investing further.
teams on land bank composition, land-buying commitments and anticipated future cash flows before investing further.
PM:
Trading continues to deteriorate
We believe the house builders will have to raise equity to bolster cash flow as mortgage approvals continue to fall, the more active mortgage lenders in 1Q08
pull back their lending (notably Abbey), order book reservations remain under pressure from declining valuations, and increased LTV requirements and punitive rates result in a rapid increase in cancellations.
We believe the house builders will have to raise equity to bolster cash flow as mortgage approvals continue to fall, the more active mortgage lenders in 1Q08
pull back their lending (notably Abbey), order book reservations remain under pressure from declining valuations, and increased LTV requirements and punitive rates result in a rapid increase in cancellations.
PM:
Equity issues – sooner rather than later
With share prices under continued pressure, market sentiment low and the duration of the mortgage crisis as yet uncertain, we believe house builders have
little choice but to drive for cash flow and seek to lower debt given the increasing risk that earnings could effectively disappear and interest cover covenants could be breached. Although lenders may be to a degree understanding (and will, in our view, negotiate around potential covenant breaches), a carefully balanced approach between cash generation and equity issuance to reduce group debt seems to us to be the only realistic option to limit financial distress while avoiding a further collapse in land prices.
With share prices under continued pressure, market sentiment low and the duration of the mortgage crisis as yet uncertain, we believe house builders have
little choice but to drive for cash flow and seek to lower debt given the increasing risk that earnings could effectively disappear and interest cover covenants could be breached. Although lenders may be to a degree understanding (and will, in our view, negotiate around potential covenant breaches), a carefully balanced approach between cash generation and equity issuance to reduce group debt seems to us to be the only realistic option to limit financial distress while avoiding a further collapse in land prices.
PM:
PM:
Busy morning in the telcoms sector
PM:
More M&A action
PM:
Telcos keeping bankings in employment
PM:
News late yesterday that verizon Wireless are trying to buy Alltel from Goldman and TPG
PM:
verizon Wireless a JV between verizon and Vodafone
NH:
and note Goldman also are adviser on the deal and still have a great slug of the LBO debt on their balance sheet
PM:
NH:
nice work if you can get it
PM:
vertical financial integration
PM:
Now, those who read this service about a year ago will now that Voda has been pushing for this for a while
PM:
Voda wanted Verizon to step in when Goldman and TPG were first doing their deal
PM:
In fact it got so heated — the relationship — that Vodafone actually looked at bidding for the whole of Verizon
PM:
that would have created a $160bn mobile and fixed line telco
PM:
Didnt happen of course
PM:
Goldman and TPG probably very pleased to get an opportunity to edge away from this one
PM:
They clearly couldn’t pass on the debt
PM:
The deal didnt actually close until November — by which time the crunch was in full swing
NH:
of course the key read across for Vod is that it will not get a divi now from Verizon Wireless
NH:
here’s some comment from Investec
NH:
Vodafone has confirmed that Verizon is in talks to buy Alltel, the fifth largest mobile operator in the US for a price of c.$27bn. This is inline with the $27.5bn
valuation when Alltel underwent a private equity buyout six months ago (by TPG and Goldmans). Verizon Wireless uses the same CDMA technology that Alltel
does and explored buying Alltel last year when it was up for sale.
.. A deal with Alltel would catapult Verizon Wireless back into the number 1 slot in the US, with 80m mobile subscribers compared to AT&T on 70m. There would be strong synergies including opex and capex reductions, which underpins the rationale for the deal.
.. But it is likely the deal would be mostly funded in debt (at the very least we think Verizon Wireless would assume the $23bn Alltel debt) which would defer any
hopes of a VZW dividend. Given cash generation by VZW this suggests a deferral would be by approximately two years.
.. For Vodafone shareholders, hopes of cash returns from VZW continue to fade and this is likely to be seen as a negative for shares. Combined with the
potential for Vodafone to overpay for Tiscali, near term newsflow may weigh on shares. With shares trading on our forecasts on 11.6x FY09E P/E with a 5.2%
dividend yield, we retain our HOLD stance and 160p price target which is based on DCF analysis and peer PER multiples.
valuation when Alltel underwent a private equity buyout six months ago (by TPG and Goldmans). Verizon Wireless uses the same CDMA technology that Alltel
does and explored buying Alltel last year when it was up for sale.
.. A deal with Alltel would catapult Verizon Wireless back into the number 1 slot in the US, with 80m mobile subscribers compared to AT&T on 70m. There would be strong synergies including opex and capex reductions, which underpins the rationale for the deal.
.. But it is likely the deal would be mostly funded in debt (at the very least we think Verizon Wireless would assume the $23bn Alltel debt) which would defer any
hopes of a VZW dividend. Given cash generation by VZW this suggests a deferral would be by approximately two years.
.. For Vodafone shareholders, hopes of cash returns from VZW continue to fade and this is likely to be seen as a negative for shares. Combined with the
potential for Vodafone to overpay for Tiscali, near term newsflow may weigh on shares. With shares trading on our forecasts on 11.6x FY09E P/E with a 5.2%
dividend yield, we retain our HOLD stance and 160p price target which is based on DCF analysis and peer PER multiples.
PM:
Voda stock currently down 2.25p at 152
PM:
diped to 150p earlier
PM:
Got any more research on this?
NH:
have some stuff from Caz on Voda
NH:
Verizon Wireless in talks to buy Alltel, may lead to concerns over the timing of dividend
payments
payments
Overnight, it has been widely reported that Verizon Wireless is in discussions to purchase ALLTEL
from the Goldman Sachs/ TPG consortium at a price of $27bn (source: Reuters). Vodafone has
this morning confirmed that Verizon Wireless is in “advanced discussions” regarding the potential
acquisition of ALLTEL .
NH:
The initial concern for Vodafone investors is likely to involve the timing of dividend payments from
Verizon Wireless. Current expectations were for dividends to re..commence once Verizon Wireless
became debt free which had looked likely to be around March 2010. An acquisition with ALLTEL
might push this date out by a further two years or so. We estimate Verizon Wireless has proforma
net debt of around $15bn at March 2008 and generates around $1bn of free cash flow per
month.
Verizon Wireless. Current expectations were for dividends to re..commence once Verizon Wireless
became debt free which had looked likely to be around March 2010. An acquisition with ALLTEL
might push this date out by a further two years or so. We estimate Verizon Wireless has proforma
net debt of around $15bn at March 2008 and generates around $1bn of free cash flow per
month.
Furthermore, we understand that Vodafone, as a 45% shareholder in Verizon Wireless, would not
have a formal veto rights over this transaction. This reflects the high amount of equity at Verizon
Wireless and the very limited level of equity at Alltel (almost all debt). Vodafone has veto rights
over transactions that exceed 20% of Verizon Wireless, measured on an equity basis.
Against these concerns, we would highlight the strong track record of the management team at
Verizon Wireless combined with the benefits associated with industry consolidation.
NH:
Further background
A price of $27bn equates to 8.7x FY08 ALLTEL EBITDA based on forecasts before ALLTEL was
taken private last year (for $27.5bn), although ALLTEL’s operating metrics have improved since.
An ALLTEL purchase would add 13.2m subscribers to the Verizon Wireless customer base, taking
the total base past 80m, ahead of AT&T at 71m. ALLTEL has long been an obvious fit for Verizon
given shared CDMA technology and very limited overlap over ALLTEL’s 72m POP base, where
Verizon already roams out of region under the companies’ existing agreement. VZ’s high level of
familiarity with the ALLTEL assets means that integration would be a relatively smooth process.
We estimate VZ could realise post..tax synergies with an NPV of over $6.4bn from the
ALLTEL transaction, meaning VZ would be paying c. 6.9x FY08 EBITDA post synergies. This
is likely conservative, as we assume an aggressive discount rate and exclude Capex
synergies from our analysis. The bulk of synergies would come from roaming (Verizon is one
of the largest roamers on AT’s network), sales and marketing and corporate expense
A price of $27bn equates to 8.7x FY08 ALLTEL EBITDA based on forecasts before ALLTEL was
taken private last year (for $27.5bn), although ALLTEL’s operating metrics have improved since.
An ALLTEL purchase would add 13.2m subscribers to the Verizon Wireless customer base, taking
the total base past 80m, ahead of AT&T at 71m. ALLTEL has long been an obvious fit for Verizon
given shared CDMA technology and very limited overlap over ALLTEL’s 72m POP base, where
Verizon already roams out of region under the companies’ existing agreement. VZ’s high level of
familiarity with the ALLTEL assets means that integration would be a relatively smooth process.
We estimate VZ could realise post..tax synergies with an NPV of over $6.4bn from the
ALLTEL transaction, meaning VZ would be paying c. 6.9x FY08 EBITDA post synergies. This
is likely conservative, as we assume an aggressive discount rate and exclude Capex
synergies from our analysis. The bulk of synergies would come from roaming (Verizon is one
of the largest roamers on AT’s network), sales and marketing and corporate expense
PM:
PM:
Any more on this Informa bid speculation we were discussing yesterday?
NH:
well, the name we mentioned yesterday is right
PM:
Providence Equity Partners
NH:
yep
NH:
however
NH:
while we are pretty sure they are looking and crunching the numbers
NH:
they have not done anything formal
NH:
or approached the company
PM:
that’s what your people are saying, yeah?
NH:
and they are pretty confident
PM:
One to wait for
NH:
yep but there are ways around the debt issue
NH:
Informa could be broken up
NH:
was hearing rumours that UBM were sniffing around the company
NH:
might have be interested in some of its conference businesses
NH:
and then of course Datamonitor, which they recently acquired could be sold off
PM:
Informa has come back 12.2p this morning to 391
PM:
Some burnt fingers there i fear 
PM:
taxloss — we are not so sure these reports of Voda’s interest in Tiscali are quite as solid as the market seems to be assuming
NH:
in fact the company just does not recognise some of the stuff that has been written
PM:
hmmm
NH:
its almost rate time
PM:
PM:
Just quickly — Regent Inns
PM:
Always surprised to find this company still listed
PM:
takeover discussions taking longer than anticipated
PM:
No surprise there then
NH:
lost a wicket
NH:
the skipper clean bowled
PM:
Stock has dropped 3p to 11.75p on that
PM:
NH:
Pieterson strides to the crease
NH:
so everyone going for no change
NH:
on a different topic
NH:
got an updated spreadsheet on the likey FTSE changes next week
NH:
heading out of the FTSE 100
NH:
Alliance & Leicester and Persimmon
NH:
in goes Invensys and Ferrexpo
NH:
out of the FTSE 250
NH:
HELICAL BAR
MARSHALLS
EAGA
COLLINS STEWART
ASSURA GROUP
CAPITAL & REGIONAL
AGA RANGEMASTER GROUP
FINDEL
MARSHALLS
EAGA
COLLINS STEWART
ASSURA GROUP
CAPITAL & REGIONAL
AGA RANGEMASTER GROUP
FINDEL
NH:
in come
HERITAGE OIL
BH MACRO
HSBC INFRASTRUCTURE CO.
SALAMANDER ENERGY
GCAP MEDIA
ADVANCE DEVP.MKTS.TST.
DOMINO PRINTING SCIENCES
JPMORGAN EUR.FLEDGELING
HERITAGE OIL
BH MACRO
HSBC INFRASTRUCTURE CO.
SALAMANDER ENERGY
GCAP MEDIA
ADVANCE DEVP.MKTS.TST.
DOMINO PRINTING SCIENCES
JPMORGAN EUR.FLEDGELING
NH:
Heritage Oil couild be one to watch
NH:
not been indexed before
NH:
reckon the trackers will need to buy 25-28m shares
NH:
stock is quite tight I think
NH:
might be worth keeping an eye on
PM:
NO CHANGE
NH:
no surprise
PM:
Rates stay at 5%
PM:
No statement
NH:
crispy send me a mail and will fwd spreadsheet
PM:
NH:
sorry for being late
NH:
will be up to speed tomorrow – promise
PM:
We are done
PM:
But I should give people early warning
PM:
There will be NO markets live on Monday
PM:
We will be in the air — on the way to NY
PM:
To pickup our Webby
NH:
but on Tuesday
NH:
look out coz its ML from Wall Street
PM:
yes, should be fun
PM:
Tho will be a bit early in the morning for us
NH:
very early
PM:
Better collect some news for that
PM:
But in the meantime — we will be back tomorrow at 11am
NH:
see you then
PM:
Thanks for joining us today
PM:
seeya