TODAY’S FAYRE – M&A, markets 7 bonds

TODAY’S FAYRE – Tuesday, 13th May 2014

“Whose woods these are I think I know.
His house is in the village, though;
He will not see me stopping here
To watch his woods fill up with snow.
My little horse must think it queer
To stop without a farmhouse near
Between the woods and frozen lake
The darkest evening of the year.

He gives his harness bells a shake
To ask if there is some mistake.
The only other sound’s the sweep
Of easy wind and downy flake.
The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.”

Robert Frost – poet – 1874-1963

Fulham FC fans have been condemned to at least one season in the Championship. Fulham deserved to be relegated for running on empty – clean out of confidence and more to the point lack of commitment to the cause. They signed off at the Cottage against Crystal Palace on Sunday in a dire contest, which was certainly no advertisement for the Premiership. There was absolutely no sign of any quality on display from the players on either side, with the exception of the two Fulham youth team members – Woodrow and David aged 19 and 21 respectively. They both scored cracking goals and offered hope for the future in a dire 2-2 draw, which Fulham certainly did not deserve to lose.

In most peoples’ opinion Brendon Rodgers was likely to be voted manager of the year. Well the issue was sensibly fudged with honours even. Brendon Rogers was the LMA manager of the year. However the Premiership manager of the year went deservedly to Tony Pulis. To have saved Palace from relegation when the Eagles were dead and buried at Christmas was nothing short of a miracle. However I hope that next year Pulis does expect Palace to play the dreadfully negative and unattractive football he coached Stoke City to adopt during his tenure at the Britannia!

England manager Roy Hodgson sprung very few surprises with his World Cup squad. It struck me as an observer that all were there on merit, though I have slight doubts as to whether Chris Smalling is a good enough utility back. I feel a bit sorry for Kyle Walker. I love Mr Hodgson positive mental attitude, but England win the World Cup? Maybe in my dreams!

The sustained level of M&A activity together with positive vibes about the US and UK economies helped to underpin the current momentum behind equities yesterday. The CBI raised its forecast for GDP in the UK to 3% this year, suggesting that the economic activity was expanding on a much broader base than last year. This, of course attracted comment that rates could start to rise as early as January next year, even if the hike was only symbolic at say by 0.25%. Concern over a property bubble has preoccupied regulators, analysts, scribblers and politicians alike. The ‘chattering’ classes were all chucking their two cents worth in on the Pfizer acquisition of Astra Zeneca. Hopefully the meeting of all interested parties at the BIS Select Committee will resolve matters intelligently, leaving political interference on the side-lines, with the Public Interest Test 2002 being totally irrelevant, as the boxes for security, media and financial probity are all neatly ticked.

Also rumours abounded that Carphone would consummate its marriage with Dixon Retail in a £3.7 billion takeover on Thursday and BskyB let it be known that it intended to relieve 20th Century Fox of its stakes in Sky Deutschland and Sky Italia. One assumes that BskyB will be obliged to increase their existing stakes, valuing the whole shooting match at around E22 billion. The market conveyed the impression that it wanted more meat on the bone, before offering full endorsement to this proposed deal.

There was also plenty of activity on the other side of the Pond. Hillshire Brands has agreed to pay $4.3 billion for Pinnacle Foods, whose shares rallied by 13% yesterday. Allergan rejected Lareant’s $47 billion bid for the Botox titan. Enter stage left – AT&T with a potential $50 billion bid for DirecTV – so the market still maintains its appetite for deals. Tech stocks also had a great rally on the Street of Dreams yesterday – NASDAQ up 1.7%, with Facebook, Netflix and Twitter all up between 4.5% and 6%. It was a decent session. Conversely apart from Japan’s NIKKEI on the back of its weak Yen, which rose 1.85%, Asia’s response was rather muted, as China continues to trot out very average ‘selling-plate-class’ data. US retail sales for April, posted today, will be eagerly awaited.

There was good news yesterday on UK retail sales which rose 5.7% thanks to a really productive Easter. This will give Mark Carney and his MPC another headache, possibly encouraging a small symbolic hike in rates in early 2015. The FTSE had a respectable session yesterday adding 37 points to 6851. If another 20 points is added this morning on expectation, the FTSE will only be 62 points adrift from it all time record. Mining stocks led the way adding between 2.7% and 4.5%, part from Lonmin. Today Tui Travel, Xchanging, National Express and esayJet all posted very acceptable results. Apart from Xchanging and National Express all are expected to advance in value. Royal Bank of Scotland is expected to announce details of the forthcoming IPO of Citizens Bank, valued at $15 billion. RBS is expected to divest itself initially of 25% of its holding.

It is always dangerous to compare financial apples with pears. However there are some interesting analogies on European bonds. Spanish and Italian Banks have made a King’s ransom on their bond holdings in the last 4 years. Spain’s 10-year yield is down from 9% to 2.5% and change and Italy from 7% to 2.5% and change. Thank you Mario Draghi for your assistance and frankly economically that progress is unrepresentative. Talk about massaging! Will these banks put these profits back in to their respective economies? Don’t hold your breath! It’s the Irish yields I cannot get my head around! – 10 year yield own from 14% in 2011 to 2.65% – lower than a 10-year gilt. Well done Ireland. You embraced and accepted austerity with responsibility!

I have always been critical of the fact that many MPs are simply not qualified to deal with business arrangements. In regard to Andrew Bailey’s committee I respectfully suggest that I know more about non-ferrous welding than it knows about the drug industry. Pfizer’s Ian Reid must not have his feathers ruffled by antics of the committee. He must keep his cool. This deal must be decided by shareholders, who have a care of duty to deliver the correct balance of commercial reality and price. No CEO can guaranty any jobs – home or away. On balance Pfizer looks more vulnerable in terms of job losses if 20% R&D is maintained in the UK, with the Cambridge operation very much to the fore. Somewhere around £53 a share represents a very large premium. Astra shareholders should bite Pfizer’s arm off. Astra’s shares have rallied from £35 in January to £49 today! Also if this merger makes the world a healthier place, that must surely be encouraged. Both companies have vulnerable pipelines; so if a merger brings synergy without too much asset stripping – so be it! It is though that Pfizer will increase its existing offer before going hostile.
Panmure Gordon (UK) Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.
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