FT Alphaville » Markets Live transcript 18 Mar 2010

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Markets Live transcript 18 Mar 2010

Posted by Neil Hume on Mar 18 11:03.

Markets Live chat transcript for the chat ending at 12:38 on 18 Mar 2010. Participants in this chat were: Neil Hume, FT Bryce Elder Paul Murphy

Good morning

Hola to our friends in Spain

welcome to Markets Live

FT Alphaville’s daily markets round up

Bryce is here

and raring to go

and there’s no ROTR

so we can close it now

Yes. Raring.

a pity

because there’s a lot to talk about

Come on folks. ML works on your iPhone.

No excuse even if you’re at Cheltenham.

mind you

some people could be nursing a hangover from St Patrick’s day

and also some financial pain

from the Shrewdette

Had a nightmare yesterday.

Zero

Nothing came in.

Which equalled my pin-the-tail-on-the-donkey approach

anyway, she is confident

of making amends today

Not my best effort yesterday – blame the drinks on the train up (!) – but did manage to make a couple of collects at the track though that’s no comfort for you. Maybe I should run for cover … but I’m made of sterner stuff so if you can bear hanging in with me …

1:30 NICANOR 14/1 top class novice hurdler – running well over fences now. (he does have a Denman scalp in his cupboard albeit in 2006) Bit mystified by his price though.

2:05 ALFIE SHERRIN 7/2 favourite should see Ruby back in the winners enclosure – but I also have a liking for FREDO 20/1 impressive last win by 14lbs up in the weights. EW @16/1 (William Hill paying 5 places in this so worth a flutter)
2:40 Poquelin (Ruby again) is favoured to take this but I’m going for TRANQUIL SEA 4/1

3:20 This should go the way of BIG BUCKS 8/11 he’s dominated this division but I have a sneaking regard for TIME FOR RUPERT on an ascendant curve and likes the course, so nice EW flutter @14/1 and FC with Big Bucks.

4:00 My old favourite CHAPOTURGEON 12/1 must figure here if he’s back to form after uncharacteristic flop at New Year. And for my “off-the-wall-follow-me-if-you’re-brave” pick for the day VICTORIAS GROOM – up in class, but low in weights – EW @ 33/1 (again Will Hill paying 5 places)

4:40 Chopped and changed between several in this but have settled on SHILLINGSTONE 7/1 after his stylish Newbury win.

Double or quits I guess.

Meanwhile, I’ve pre-selected my naps from the Racing Post

go on then

Using the tried and tested “dartboard” approach

1:30 – Awesome George
2:05 – Mr Thriller
2:40 – Planet of Sound
3:20 – Oscar Dan Dan
4:00 – Gwanako
4:40 – Parsons Legacy

thanks for that

Quid multiplier down.

Anyway, let’s cut to some stocks stuff now the rabble has joined us.

11:08AM

yes

Tin Man asks if the Bandits are still out there

and the answer is yes

a number were wiped out during the crunch

but some survived

and they are just starting to emerge from hiding

which brings us nicely to

BG Group (BG:LSE): Last: 1,191, up 18 (+1.53%), High: 1,198, Low: 1,164, Volume: 3.92m

bid rumours

Hm.

talk of an offer from either

Exxon

or ONGC

Hmmmmmmmmmmmmmm.

rating on this one

although

has heard it

and he is the Taxi Driver

Yeah, well. Emoticon

and less are currently talking about the Exxon story.

But …..

Isn’t Exxon already doing a big deal?

it is

that shale gas thing in the US

XTO Energy

Could they fight a war on two fronts?

out of the question

That’d me my answer as well.

but

ONGC

well you can’t rule them out

or the Chinese I guess

Yeah – an Indian government Emoticon

was on the tape today talking about ONGC doing one major deal a year

indeed

I have the story

*INDIA URGES STATE-OWNED OIL COMPANIES TO BUY ASSETS OVERSEAS

March 18 (Bloomberg) — India, planning a sovereign wealth fund to
help companies compete with China for overseas energy assets, has
ordered state-run Oil & Natural Gas Corp. and Oil India Ltd. to speed up
purchases in the year starting April.

“We are urging our companies to get at least one big asset each
next fiscal” year, Oil Secretary S. Sundareshan, the senior-most
bureaucrat in the petroleum ministry, said in a telephone interview in
New Delhi today. “We are looking for producing assets overseas.”

China, with $2.4 trillion of foreign-exchange reserves and a $300
billion sovereign fund, has outpaced India in the global quest for
resources to feed the world’s fastest-growing major economies. Chinese
companies spent a record $32 billion last year buying oil, coal and
metals assets abroad, while a $2.1 billion investment by ONGC was
India’s sole energy acquisition.

“Energy security is one of the most pressing issues for India,”
Vikas Pershad, Chicago-based chief executive officer of Veda Investments
LLC, said by telephone. “The companies will need a push and all the help
they can get from the government.”

Right. So that looks like 2+2 = bid.

indeed

but you can’t rule it out

although I would say it is a long shot

and BG is quite an expensive asset to buy

in market cap terms

£40bn

And all the value’s quite far down the pipe, so to speak.

always amazes me

when I see the market cap of BG

and then look at Centrica

like ICI and AstraZeneca I guess

anyway

this really is the hardy perininial of bid stories

like the dafs

The ragwort of takeover tales.

it springs up every now and then

Speaking of …..

There’s another perrenial sprouting up today.

Wellstream Holdings PLC (WSM:LSE): Last: 571.50, up 29.5 (+5.44%), High: 589.00, Low: 566.00, Volume: 2.23m

indeed

ENI being mentioned as a bidder

and Petrobras

and no one seems to believe that either would bid

apparently Saipem

is a much more likely bidder

Well, yes.

Eni owns 43% of Saipem

So this Eni link might just be crossed wires.

And Siapem has been linked many many many many many times.

it ihas

It makes sense for dull, industrial reasons such as installation capacity and suchlike.

and the Wellstream bid story

is not the most difficult in the world to broke

is it?

Well exactly. It’s plausible.

And there’s a big short position in Wellstream.

yes there is

About 10% I think.

and note that Petrobras have been making noises

about shifting away from non flexible pipes

Petrobras are Wellstream’s biggest customer by a nautical mile, of course.

so it doesn’t sound like they are bidder

right

more RAW

RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.

or RAWish stuff

Temenos

the Swiss banking software outfit

had a big move yesterday afternoon

up almost 7% in volume

and up again today

NOw

we aren’t getting anywhere with this story

the shutters have gone up

although the SAP side

are playing things down

as for Oracle

no joy there

(Tuna: leave it.)

we should move on

and have a look at the wider market

(Thanks OilCan)

Certainly.

11:20AM

So ………….

We’re flat.

yep, going nowhere

up 2.4 points at 5,647

ahead of the expiry

no one seems to want to do anything

actually

I got an interesting little note on the expiry today

with the names of stocks in and out of the money

didn’t make a great deal of sense to me

but I can stick it up

Sounds potentially interesting. Give us a look.

During expiration week options with strikes that have a large build up of open interest around the spot price can sometimes affect the behaviour of underlying stocks.

When the open interest for at-the-money option is high, delta hedging causes the underlying stock price to gravitate towards the nearby strike or become
pinned.

A stock will become pinned to a price when investors who are long calls
hedge their positions by buying the stock when it falls beneath the strike
and selling it above. Those who are short via puts cause the opposite affect
– buying above the strike and selling below.

got all that?

Er … I’ll read it over lunch.

PUTS
OUT OF THE MONEY
(Strike Px < Curr Px):
STOCKS w/POTENTIAL S/T DOWNSIDE

Ticker Px Strike
DB1 GR 53.4 52
CS FP 16.065 15.63
SZG GR 67.99 66
ENI IM 17.49 17
ACA FP 12.415 12
RUKN VX 50.3 48
FTE FP 17.845 17
VIV FP 19.515 18.5
UBSN VX 16.95 16
CBK GR 6.35 6
GIVN VX 916 840
DPW GR 13.235 12
SAN SM 10.325 9.32
ASSAB SS 144.5 130
AI FP 88.94 80
ELUXB SS 170 150
SKFB SS 125 110
ABBN VX 22.78 20
KBC BB 37.17 32
KGF LN 228.7 195
BAY LN 247.7 210
STM FP 6.777 5.6
SAZ GR 29.215 24
PHIA NA 24.41 20

CALLS

IN THE MONEY (Strike Px < Curr Px): STOCKS w/POTENTIAL S/T DOWNSIDE

Ticker Px Strike
AGN NA 4.895 4.8
AH NA 9.814 9.6
VIE FP 24.565 24
TNT NA 20.605 20
ERICB SS 77.7 75
WKL NA 16.135 15.5
ENEL IM 4.195 4
ALFA SS 110.2 105
SDF GR 46.3 44
MUV2 GR 116.55 110
RI FP 60.27 56.59
VOD LN 149.9 140
LLOY LN 58.05 54
BP/ LN 625.3 580
LIN GR 86.39 80
DBK GR 54.57 50
SIE GR 71.52 64
NOK1V FH 11.27 10
BARC LN 361.85 320
NESN VX 54.25 48
HEIA NA 38.49 34

AT THE MONEY (usually larger market cap stocks): WATCH FOR MOVES POST
EXPIRATION

Ticker Px Strike
SWEDA SS 73.15 74.47
BG/ LN 1176.5 1200
DTE GR 9.836 10
SYNN VX 297.5 300
BNP FP 58.01 58.31
ALV GR 89.85 90
FNC IM 9.975 10
MEO GR 43.015 43
DAX 6008.22 6000
BAYN GY 52.01 52
BEI GR 44.12 44
DAI GR 34.195 34
IFX GR 4.524 4.5
BAS GR 44.32 44
BMW GR 32.585 32

OKay

Well that’s easy on the eye. Thanks very much.

that’s seems to have put the ROTR

to sleep

but all jokes aside

this will be a busy expiry

11:24AM

Right

looks like we are experiencing some tech issues

please refresh everyone

I have refreshed

and we are ready to move on

so from all those imagined bids

to a real one

Arriva

Arriva PLC (ARI:LSE): Last: 693.00, up 16 (+2.36%), High: 700.00, Low: 677.50, Volume: 3.72m

and Ze Germans have finally got round to sticking out a statement

confirming they are the bidder

Jå!

and once again

they only did so

after the were named IN PRINT

and under pressure from the regulators

anyway

this is what it took them and their advisers

a day to come up with

Makes a mockery of the rules.

DEUTSCHE BAHN AG (“DEUTSCHE BAHN”) – RESPONSE TO PRESS SPECULATION REGARDING ARRIVA PLC (“ARRIVA”)

Deutsche Bahn notes the recent press speculation regarding Arriva.

Deutsche Bahn confirms that it made an approach to Arriva regarding a possible cash offer. Discussions are ongoing and there can be no certainty that any offer will be made.

A further announcement will be made in due course if appropriate.

Three days to write that.

THREE DAYS.

I know

anyway

the story has moved on

and the question now is

what will shareholders accept

and what can Ze Germans afford

and will Lord Many of Hartlepool

let these evil foreigners buy one of our bus companies

The middle question is a rather tricky one to answer.

How much can a company that’s state-owned afford?

We can’t do the usual sums.

well RBS were very bearish yesterday on this

and Detsche Bahn’s balance sheet

The press is picking up on the bid rumours circulating the market yesterday. The coverage
seems to focus on Deutsche Bahn as the potential candidate. We’re unsure whether that
group has the balance sheet strength to absorb Arrivas £2.1bn enterprise value.

Deutsche Bahn Group net debt is EUR 15.3bn (1H09). FY08 EBITDA was EUR 5,206m but 1H09
EBITDA fell to EUR 1,994m vs EUR 2,763m in 1H08. The group had been planning an IPO of its DB
Mobility Logistics subsidiary (Long distance rail, Regional rail and bus, Urban bus, Rail Freight and
logistics) but pulled it in October 2008. Net debt at DB Mobility Logistics, the vehicle we presume
would be used for any such transaction, is EUR 7.8bn (1H09). FY08 EBITDA was EUR 3,559m but
1H09 EBITDA declined to EUR 1,178m vs EUR 1,873m in 1H08

Does Deutsche Bahn have the balance sheet strength?
In the absence of other data, assuming FY09 matched annualised 1H declines, that would suggest
Deutsche Bahn groups net debt to EBITDA ended year at c4.1x, while DB Motility Logistics would be
c3.5x. c2.5x tends to be seen as a sensible level (broadly where NatEx (Buy) refinanced to) among
the UK publicly quoted names (albeit different rules my apply for state-owned entities).

Helpful noise for our Buy case
Overall we’re sceptical, but no harm is caused to our Buy stance by these kind of stories (which we
see as likely to continually resurface over the period ahead given the recent Keolis affair). We have a
740p price target based on the fundamentals – please see our recent note Returning to returns
(March 11) for full details of our view.

Okay.

but

we have to consider

if this is about national pride

and Deutsche Bahn

taking on SCNF

in Europe

balance sheet considerations will probably go out the window

I can’t get my head around the politics of this.

Theoretically, what would they have to pay?

(Yes – FatDaz)

well

I reckon at least 750p

that’s the bare minimum

but I can see this going with an 8

somewhere on the lines

it is pretty unique asset

and even at 800p it’s not outragously expensive

and its not a basket case like National Express

anyway

I have a bit of comment

to stoke up the debate

this is from JP Morgan

Arriva announced on Wednesday that it had received an unsolicited
approach from an unnamed third party about a possible offer for the
company. A report on Reuters later on in the day seems to confirm that the
interested party is Deutsche Bahn, the German rail operator, but the
company has made no comment.

Arriva is in our view a unique asset for potential bidders interested in
gaining scale in the deregulating European public transport market. It has
a strong presence in a number of major European markets unlike the
newly merged transport operations of Veolia and Transdev, for example,
it has no blocking shareholders.

In the event of a concrete bid emerging, we would not rule out some form
of counter offer given the unique nature of Arriva’s European presence.
We note here that Keolis recently approached Arriva about a potential
combination of the two businesses, but the talks were formally abandoned
earlier this month.

Our analysis of previous transaction multiples suggests a wide range for a
possible take out price with 700p at the low end (10% above Wednesday’s
closing price) and 840p at the upper end (+30%). While we view the latter
price as unlikely, it is not completely unrealistic in our view, taking the
PER valuation to 15.3x or a 17% premium to the UK market and
consistent with (more optimistic) sector valuations prevailing in 2006 and
2007.

and here’s Nomura

The announcement that Arriva has “received an
unsolicited approach from a third party” has in our
opinion put the company in ‘play’. As such, we
believe our previous valuation is now less relevant
and therefore remove the 10% discount within our
compound valuation. This increases our price
target to 648p. We also show the sensitivities to
this valuation in a takeout situation, and believe a
price of at least 790p is appropriate

Valuation: Previously we had applied a 10%
discount within our valuation to arrive at our price
target of 590p. We believe this discount is now
less relevant.

Valuation sensitivities: Our current valuation
applies a 5x EV/EBITDA to the European division,
reflecting the fall in returns in the previous couple
of years. Adding 100bp to the current EV/EBITDA
multiple would add approximately 90p per share.
Assuming an EV/EBITDA of 6.5x for Europe and
leaving the other divisions unchanged would
equate to 790p per share.

Ok – thanks.

11:34AM

Breaking

*TEVA TO ACQUIRE RATIOPHARM

Confirmed.

As per the stories this morning.

http://www.ft.com/cms/s/0/6c4461d8-326b-11df-bf20-00144feabdc0.html

Teva of Israel has won the auction for German generic drug maker Ratiopharm after making a last-minute bid of €3.5bn.

The deal, which is due to be announced on Thursday, marks the last stages of the dismantling of the late Adolf Merckle’s indebted empire.

Numberwang – that’s correct on Arriva

here’s what we picked up on the FTD story last night

Bloomberg picks up an FT Deutschland report, citing people on Deutsche Bahn’s board, saying it may bid as much as €2bn ($2.8bn) for Arriva. Adds that a firm offer could be made in the coming weeks.

On a basic calculation and at first glance, €2bn equates to around 850p per share, which is way above the maximum take-out price of 750p that we have heard. Needless to say, we are looking into it.

Right I am done with Arriva

and this refresh thing

is starting to get seriously annoying

Yeah – we’re having to refresh every minute so so to update the comments

Which seems to be a widespread problem for you chaps too.

Apologies. We’ve no idea what’s gone wrong.

(no Chopper Bear that was completely made up story)

11:38AM

Moving on then

African Barrick Gold

this Barrick Gold spin off

Yup. Four mines in Tanzania

Ambitiously priced.

indeed

book closes today

at 2.30pm

price range is 550-650p

we understand the book is covered

but at the low end of the range

which apparently the book runners are happy about

because this is at least one IPO

where they haven’t had to change the range

but what that does mean

is that the company won’t be going into the FTSE 100

and it is also worth noting the following

from a broker

Books close today on the IPO of Barrick (ABX CN) spin-off African Barrick Gold. The deal is priced between 550p and 650p and issues 100m shares. Barrick Gold announced last night that three workers were killed in a collapse at their Bulyanhulu mine – activity was suspended yesterday for rescue and recovery and will be suspended today for a period of mourning. Barrick shares fell C$0.06 yesterday. The activity shutdown is too short to be material.

Bulyanhulu ……….

That rings a bell. Hasn’t this been a mare?

yes

hasn’t generated cash for years

and it is there flagship asset so to speak

anyway

the talk in the market

is that Barrick shareholders forced them into this float

and chose London to try and get a Randgold type rating

which they won’t get

11:42AM

Right

what’s all this stuff about Game Group

Game Group PLC (GMG:LSE): Last: 98.20, up 4.3 (+4.58%), High: 98.25, Low: 92.65, Volume: 1.43m

Has been a very good market for a few days.

And, as the rabble notes, Gamestop has numbers out today

Now, Gamestop’s been hammered recently largely due to competition

Walmart pricing. Same as the supermarket story over here

Hi there

And they’ve rallied strongly into these numbers, which has led some people to think Gamestop itself may be of PE interest.

However, some simply reckon trading’s not quite as bad as feared on both sides of the Atlantic

Quick line from a US broker

Go ahead

GME lowered 4Q guidance in January, with a sales drop-off in the second half of December that we believe was due to unique competitive pressures by Walmart, which went after the casual business with aggressive discounting. While Walmart has remained aggressive on price, we believe the impact is less during non-holiday times as core gamer dynamics now prevail. While industry numbers have indicated continued weakness in the space, we believe GME has outperformed these numbers, over-indexing in some big new releases and under-indexing in the weaker casual titles. We expect GME to give guidance for 1Q and the year. Our EPS estimates are $0.48 for 1Q (Street $0.47) and $2.50 for the year (Street $2.60).

While we expect the rhetoric will support our expectation that trends at GME have been better than those for the industry overall, we expect the actual guidance will be conservative, and wouldn’t be surprised to see a range with flat EPS constituting the lower end. Given the stock’s relatively weak YTD performance, we don’t see a lot of motivation for GME to set particularly aggressive guidance, and the state of the economy does seem to suggest that some continued caution on the consumer is warranted. Moreover, we acknowledge that used product may be discounted to drive business during still recessionary sector conditions. The stock has rebounded from lows at the end of February. Even with the recovery of late, however, the shares are still down 12% YTD. Given our expectation that the positives we see for 2010 will take some time to play out in the numbers, we believe that the stock could require some patience. At the same time, however, we don’t see a lot of room for downside with tomorrow’s report and at 8x our estimate for 2010, believe the shares are at a very attractive entry point.

On background rather than new “intelligence,” it’s always made a degree of sense to put these together.

Whether it’ll happen …. dunno.

File it with the BG story I’m afraid.

ta for that. Not sure this is a wise thing to say but is Game a bit of muppet stock?

It can fall into that category I guess.

Right

Dirt-cheap retailers tend to attract a certain following.

have just refreshed and it looks like Murph has joined us

he’s the one in Green

Thought i’d better come on and share my post st patricks day hangover

not

actually

believe it or not

Manhattan’s usually a nightmare on St Paddy’s Day.

Midtown manhattan like a zoo yesterday

Embarrassemtn to the color greebn

And no, i havent learnt to spell in theus

If it’s any consolation, Chicago’s worse. Drunken fratboys passed out upside-down in the green fountains.

Not pleasant.

11:49AM

Anyway, let’s head back to the market.

have you discussed this Tullett/ BGC court stuff?

Haven’t, but will.

not yet

we were coming to it

Before that, have we managed to solve the mystery forces driving Autonomy higher yesterday?

Imjust trying to get hold of the judgement

Ah fine

Yes

Autonomy

think I solved that little mystery

backstory

share price spikes yesterday afternoon

Closed up about 4%

Some of the wires made a desperate attempt to pin it on a Exane note

BNP’s M&A list, which came out weeks ago was picked up by Barron’s in a fluff piece

crikey that is desperate

and tipped Autonomy as a takeover target for Microsoft

talk about putting a story to the move

Quite.

anyway

the real reason for the rise

was that the company have been on the road with Citigroup

seeing US investors

And what’s the feedback?

well, the yanks love this thing

because they get software apparently

and us Brits with the bad teeth don’t

Of course.

apparently the good Dr Lynch

told folks that the market size for unstructured data is $10-20bn market

and they aren’t losing market shares

on top of that

Lynch was making some very positive noises about the company’s patents

as for current trading

the Good Doctor made some Delphic comments

“spring is continuing”

Yeah yeah

Mike Lynch says stuff.

We’ve been here before.

Dr Lynch to you

show some respect

I’d rather not. Always puts me in mind of Dr Moreau, for some reason.

Anyway, what did he say about acquistions?

well, that’s the big question

isn’t it

Yup.

looks like it will be American

and probably listed

Autonomy Corp Plc (AU.:LSE): Last: 1,794, down 21 (-1.16%), High: 1,808, Low: 1,783, Volume: 261.85k

Hm.

While we’re here

11:55AM

Fatdaz to the right also makes reference to a Credit Suisse note on Autonomy

No harm in sticking that up I guess.

Raising 2010 estimates and Target Price on OEM revenue acceleration: We are raising our 2010E revenue and EPS
estimates as our analysis of underlying OEM vendors indicates an acceleration in license growth in 2010E. We are raising
our 2010E revenue estimate to $933mn from $921mn and our EPS estimate to $1.30 from $1.25. We are also raising our
DCF based Target Price to £22 from £20 on the back of estimate revisions.
Long term OEM opportunity could be worth £15.63 per share: Our 10-year view of the OEM business values the revenue
stream at approximately £15.63 in 10 years time or about £5.50 per share present value at an 11% discount rate. This
equates to about 1/3rd of the current share value of Autonomy, despite currently representing just 14% of total revenue.
OEM business improves barriers to competition: Autonomy’s OEM business is a high margin source of revenue that also
serves to improve barriers to entry in Autonomy’s core markets. By OEMing best in class technology to software vendors at
reasonable royalty rates, Autonomy has made it more likely that competitors will license the technology from Autonomy and
less likely that they will develop a competing technology.

go ahead

Expect average royalty rate to grow over time: We spoke with three Autonomy OEMs to get the partner’s perspective on
these agreements. We found that OEMs were generally pleased with the relationship and it appears that Autonomy has
strong pricing power. We would expect royalties to increase over time as greater functionality is added to OEM solutions.
Catalyst: We expect Autonomy to preannounce Q1 results in early April.
Valuation: Autonomy currently trades at 20.1x 2010E earnings, above the European software group at 17.0x. On an
unlevered FCF basis, Autonomy trades at 21.8x our 2010 estimates, above the group at 16.8x. We retain our Outperform
rating and raise our TP to £22 from £20.

And that’s the upshot of that one.

11:57AM

There is some breaking news coming out of Germany

from FT.com

Greece will have to turn to the International Monetary Fund if it needs financial assistance to back its austerity programme, rather than to fellow members of the eurozone, the German government has decided.

After weeks of stormy internal debate, legal advisers to Angela Merkel, the chancellor, have persuaded her that any other form of bail-out would be impossible in terms of the European Union’s Maastricht treaty and German constitutional law.

http://www.ft.com/cms/s/0/3943e114-327f-11df-bf20-00144feabdc0.html

The decision amounts to a defeat for the German finance ministry and the Bundesbank, where officials have been fiercely opposed to IMF intervention within the eurozone for any purpose other than technical advice.

The Greek government has already said it would turn to the Fund as a last resort, but both the European Central Bank and the European Commission have also resisted any such move.

Interesting that.

11:57AM

Murph alluded to this earlier

the Tullett/BGC legal battle is over

Tullett “victim of an unlawful conspiracy”

Before the next one

This has been going on for what — a year? or more

Poaching outrage.

They used blackberries, you know

Case started in April last year, so nearly a year.

TULLETT DAMAGES TO BE ASSESSED AT LATER DATE :TLPR LN, BGCP US*BGC, EXECUTIVES FOUND LIABLE FOR CONSPIRACY IN TULLETT CASE

I am trying to get the ruling

from our court reporter Jane Croft

Ive asked for it, but havent got yet

it is 200 pages

and she is going through it

Not that I have at the moment – the court is quite antiquated so the judges hand down paper copies..

that’s an email from Jane

Money brokers — missing link in the evolution of finance

Indeed. An unreconstructed bunch.

Terry Smith will be happy

actually

Actually, everyone thinks this is “good news” for Tullett etc

someone in the office has found a copy of his masterpiece

Accounting For Growth

Tullett Prebon Plc (TLPR:LSE): Last: 370.00, up 8.4 (+2.32%), High: 373.30, Low: 360.10, Volume: 1.22m

But i would argue that, for money brokers as a whole, people should read this

Tullett’s chief executive Terry Smith said afterwards: “In order to operate
successfully businesses need to be able to rely upon a framework of law in which
contracts are respected, and when it is necessary to resort to proceedings,
witnesses are truthful and evidence is preserved and disclosed rather than
concealed or destroyed.

http://discussions.ft.com/longroom/tables/the-wall-of-worry/credit-suisse-on-basel-3s-credit-valuation-adjustment-proposals/

That’s in the long room

It is clear that BGC, Mr Verrier and Mr Lynn had other designs.

“However, we trust that Mr Justice Jack’s judgment and findings will be
respected by them and help to take us back to the sort of legal framework which
all businesses require.”

The judge said: “The court must assume that the exposure of BGC’s conduct as
set out in the judgment will curb unlawful recruitment in the future.”

one question I have

is does this have any impact

on the Tullett takeover talks

Hang on – we don’t even know who the takeover talks are with.

that’s true

hang on

I have some analyst reaction to this

that might tell us

it’s from KBC

Judgement has just been given in the case of Tullett Prebon vs BGC by Justice Jack in the High Court. The verdict is in favour of Tullett, with financial remedies to be decided at a later date. The full verdict would take some time to read, running to 275 paragraphs, but the key points are:

Claim for damages: The Judge found that following BGC’s unlawful conduct, Tullett is entitled to claim damages, whilst the injunction against BGC recruiting from Tullett has been extended to 2 April (from the 26 March previously indicated). The quantum of damages is to be determined at a later hearing, most likely towards the end of April/May.

No counter claim: As part of the case, the Judge has also dismissed BGC’s counter-claim against Tullett. This claim was in respect of Tullett inducing three brokers who had changed their minds about joining BGC.

Overall, we think this is a small positive for Tullett Prebon and removes one potential distraction from the investment case. We do not think that the damages that are likely to be awarded will be material in the context of the group but the important point for the business is that it should make it harder to poach employees and gives the employer the protection deserved by law. Clearly the key factor for Tullett remains the ongoing bid situation. Extracts from our comment earlier in the week are attached below:

“The investment case for Tullett at this point is complicated and one that is not particularly driven by fundamentals. On a pure fundamental basis, based on current forecasts, we believe the stock is worth in the region of 400p. The Group is in early stage takeover discussions and we believe that the most likely interested parties are likely to be trade (exchange) or venture capital (possibly management backed) buyers. Such parties are likely to be able to pay in the region of 500p-630p for the business (take out multiple 12.2x-15.5x 2010 earnings). Discussions are at an early stage and there are likely to be some big personalities involved in the negotiation which leaves a substantial risk that the talks will fail. “

So – still “trade or VC” ………..

Which rules out ……….. er …..

or Terry himself

indeed

Can i but in for a mo?

yes

Need to look at Basel 3

what

for Money Brokers?

No — for banks

There is a hidden clampdown on OTC business of all types

And there is a real chance that it will have a big impact on money broking business, i believe

Dont trust me, read this Credit Suiss stuff

http://discussions.ft.com/longroom/tables/the-wall-of-worry/credit-suisse-on-basel-3s-credit-valuation-adjustment-proposals/

Loads of OTC FX and interest rate business — regular business– will attract heavy capital requirements

hmm

interesting

the missing links have tried to play this down

but then Icap warned on profits

and blamed this

Part of a move to quitely push everything thru central clearing etc

which explains

why Icap were interested in buying a clearing business

LCH

I think it was

a consortium bid

Indeed

sorry

just Zapped

a pesky fly

ZAP

Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.

hang on

some breaking news

the pay details of the ITV boss are out

And?

looks pretty punchy

Adam Crozier will join the Company as Chief Executive on 26 April 2010. His ongoing fixed remuneration will comprise a base salary of £775,000 per annum, a pension contribution at 9% of base salary, other typical benefits and a twelve month notice period. He will be entitled to participate in a performance-linked annual bonus scheme on the same basis as other executive directors. The bonus criteria have been reset by the new Board and will be stretching.

On joining Adam will also be awarded a one-off opportunity to receive up to 4,115,044 shares in ITV in 2013, subject to delivering stretching outperformance over a 3 year period. The award will be made in nil cost options and up to 75% will vest only if ITV delivers higher than median Total Shareholder Return performance against the two comparator groups outlined in the Performance Share Plan (PSP) section of the Remuneration Report over the period.

Not bad for a postman.

Adam will also be expected to comply with the ITV Executive Director shareholding guidelines of owning shares in ITV equivalent to 100% of salary.

An additional award of £200,000 in cash and £420,000 in restricted shares will be made conditional on his joining as expected on 26 April 2010. The shares will vest in three equal tranches over an 18 month period.

12:09PM

Crikey

it’s past midday

and I have a lunch at Imperial City

but there are still things we must cover

Glaxo

they are up today

GlaxoSmithKline PLC (GSK:LSE): Last: 1,257, up 32.01 (+2.61%), High: 1,261, Low: 1,236, Volume: 9.00m

That’s on the back of the reduced generic threat thing, right?

yes, Novertis have decided not bother making generic Advair

they have given it back to Vectura

which is a small cap stock in the UK

and that has tanked as a results

for GSK

this news could add 5% to earnings

and its good for sentiment

Vectura Group Plc (VEC:LSE): Last: 51.00, down 12.5 (-19.69%), High: 64.00, Low: 48.50, Volume: 6.08m

Let’s start from the Glaxo angle.

Here’s JPMorgan

This morning Vectura has announced the return of US rights to VR315
from its development partner Sandoz, the generics division of
Novartis. Co-development of VR315 continues in Europe.
• VR315 was widely speculated to be a generic version of GSK’s
biggest selling drug Advair. US sales of Advair in 2009A were £3.1bn,
11% of group sales.
• Previously Vectura management had talked about a potential US
approval of VR315 as early as a 2012-13 timeframe i.e. suggesting a
US filing in 2010. We believe the perceived risk of a US Advair
generic filing had been an overhang to GSK’s share price despite the
significant regulatory hurdles to obtaining a US generic approval,
either as an AB rated (substitutable) or as a branded generic (nonsubstitutable).

No change to our GSK forecasts. Our current Advair forecasts do not
reflect Advair generics reaching the market given the regulatory
challenges proving bio-equivalence for respiratory inhaled drugs.
• No reason disclosed for Sandoz returning US rights. However, since
Sandoz is continuing VR315 development in Europe, we speculate that
the reasons centre on FDA regulatory hurdles rather than the device
itself. We believe there are two potential reasons: i) FDA rhetoric
trying to curtail the usage of LABA containing asthma drugs; ii) the
lack of a bioequivalence regulatory pathway in the US.

Vectura intends to continue US development of VR315 by itself, but
with the lack of a significant generic partner such as Sandoz we believe
this is now a high risk venture.

thanks for that

and here’s what it means

for poor little Vectura

VEC has now taken control of full development of VR315
(assumed to be generic Advair for the treatment of asthma
and COPD) in the key US market. In return VEC receives a
$9.5m termination payment and has access to a $25m loan
facility to finance late stage trials and commercialisation.
Downgrade from Buy to Hold, TP under review.

We have concerns whether Vectura will be able to
go it alone in the US, and the new deal raises questions over the commercial
potential of VR315 in the US (vs any other generic that can be launched).
Following the loss of the Boehringer deal last year, it appears that Vectura’s
technology is not a ‘must have for respiratory drug developers. Sandoz remains
a commercial partner for the EU market (royalty based deal), and retains an
option on the US market, and is likely to remain commercial supplier of the drug
having invested over €50m in manufacturing facilities.

The other way at looking at the revised deal is that it
demonstrates management’s ambition for the US market. Vectura certainly has
the cash position, and now access to additional capital to take VR315 to market.
However the limited visibility on the generic respiratory market makes it difficult
to assess whether this is the right decision. No more details on stage of
development or anticipated launch date have been released.

The US market was always going to be the most lucrative for
a generic version of Advair. Significant regulatory, legal and commercial
risks remain and we viewed the support provided by Sandoz as a major
asset. Without Sandoz we downgrade our rating to Hold and place our TP
under review.

12:12PM

staying with small cap drug companies

it seems

that finally

after all these years

GW Pharma

is actually going to bring its canabis drug to market

What – the legal pot company has finally come good?

yeah, man

(Showing your age there, Paul.)

the drug is called Sativex

it’s for pain relief

Of course it is.

(Off to Tobago at the weekend, as it happens)

it is

in cancer

GW Pharmaceuticals Plc (GWP:LSE): Last: 115.50, up 14 (+13.79%), High: 115.50, Low: 108.50, Volume: 589.58k

anyway

this is good news for the company

And for the maker of Hobnobs.

a little comment

from Execution Noble

GW announced today that it has past the stage at which the approval of Sativex is in any doubt, with both UK and Spanish regulators agreeing there are no quality, safety or efficacy issues remaining. This is a watershed moment for GW where the intangible becomes tangible. The immediate benefit will be milestone payments and product royalties from launch, but the greater significance is validation of GW’s cannabinoid focused business model, which lowers its risk rating for Sativex in cancer pain, and its early stage cannabinoid pipeline. We move our valuation to 132p and reiterate our BUY stance, highlighting the strong competitive advantage GW occupies in the cannabinoid space, which has potential to deliver treatments for many different diseases.

GW has now passed the “day 150” stage of the Sativex approval process in Europe, beyond which there remains any doubt about eventual approval. Both the UK and Spanish regulators agree that there are no quality, safety or efficacy issues remaining in the way of an approval and the process now moves to discussion of patient labeling, packaging etc. From here we expect:

A UK approval in a matter of weeks once labeling and other technicalities have been agreed
This will result in an £10m milestone payment from Bayer (8% of market cap) and immediate launch in the UK
Spanish approval will follow a bit later (a few months)
A £2.5m milestone payment will await pricing agreement in Spain, which we expect in the current financial year
The process will then move into the mutual recognition process (MRP) where the UK regulator will act as the “rapporteur” for approval in other European states and these approvals will proceed over 2010-11.

Valuation up 30% to 132p, cancer pain catalyst imminent
This is a watershed moment for GW as it validates its cannabinoid focused business model, lowering the risk rating for Sativex in cancer pain, and increasing the “option value” of its substantial early stage cannabinoid pipeline. We had flagged previously that our valuation of this scenario was c.130p, and today we move our valuation to 132p, based on our risk adjusted SOTP (see page 2). We see the focus for GW switching to developing a greater understanding of the ultimate potential of Sativex in MS and the product ramp, as well as the looming Phase II/III data expected imminently in cancer pain, which if positive would move our valuation nearer to 150p.

So – a UK biotech that hasn’t imploded.

yes

we should have it stuffed

and put on the wall

That puts it in a field of … one?

Although I guess there’s still time.

12:15PM

Right

it is almost time to go

but before we do

some more small cap stuff

Gulfsands Petroleum

not to be confused with the other one

are up

Syrian play, this.

rumours results could impress

or the company could be a takeover target

Gulfsands Petroleum plc (GPX:LSE): Last: 275.00, up 15.25 (+5.87%), High: 277.25, Low: 261.50, Volume: 903.94k

Second angle looks a bit scratchy.

Not sure I can see that.

and one final thing

remember the Sir David Jones

JJB

Mike Ashley saga

The one with the pool table in his living room? Of course.

yes

very Footballers wives

anyhow

at the height of the Ashley loan story

he put his house on the market

this one

in North Yorkshire

near Taxloss funnily enough

http://www.rightmove.co.uk/property-for-sale/property-25757147.html?locationIdentifier=REGION%5e3286&radius=0.5&includeSSTC=true&_includeSSTC=on&pageNumber=1&backToListURL=%2Fproperty-for-sale%2Ffind.html%3FlocationIdentifier%3DREGION%255E3286%26radius%3D0.5%26includeSSTC%3Dtrue%26_includeSSTC%3Don

well

it’s still on the market

but at a lower price

http://www.rightmove.co.uk/property-for-sale/property-25248196.html

this time for £1,950,000 not £2,250,000.

a bargain

I am sure you will agree

(Mudcrab: It’s *** TECH PROBLEMS *** We’ve been moaning about them for more than an hour now.)

yes

the Tullett ruling is now online

http://www.bailii.org/ew/cases/EWHC/QB/2010/484.html

13% cut to the asking price.

I’ll consider that a benchmark of sorts

12:20PM

Okay, that’s us 20 minutes over deadline

yes

I really must go

We’ ve been fighting the technology demons all session

And Neil has to run off to Tesco Value Hakkasan immediately.

yes

not my choice

a market makers

So let’s close this

Thanks for all your comments.

yes

see you all tomorrow

Some of which we saw, most we didn’t.

And good afternoon, all.

bye

This entry was posted by Neil Hume on Thursday, March 18th, 2010 at 11:03 and is filed under Uncategorised. Edit this entry.

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Markets Live transcript 18 Mar 2010

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