TODAY’S FAYRE – Wednesday 8th April 2015
‘For the last time, maybe, upon the knoll I stand.
The eve is golden, languid, sad.
Day like a tragic actor plays his role
To the last whispered word and falls gold-clad.
I, too, take leave of all I ever had.
They shall not say I went with heavy heart:
Heavy I am, but soon I shall be free,
I love them all, but oh I now depart
A little sadly, strangely, fearfully,
As one who goes to try a mystery.
The bell is sounding down in Dedham vale:
Be still, O bell: too often standing here
When all the air was tremulous, fine and pale,
Thy golden note so calm, so still, so clear,
Out of my stony heart has struck a tear.
And now tears are not mine.
I have release From all the former and the later pain,
Like the mid sea I rock in boundless peace
Soothed by the charity of the deep-sea rain….
Calm rain! Calm sea! Calm found, long sought in vain!
O bronzen pines, evening of gold and blue,
Steep mellow slope, brimmed twilit pools below,
Hushed trees, still vale dissolving in the dew,
Farewell. Farewell. There is no more to do.
We have been happy. Happy now I go.’
Robert Nichols – soldier & poet – 1893-1944
This Election campaign has become so personal and there is still just over three weeks to go. Not since the days of the venomous Kinnock in 1992, when he and Labour lost the election through arrogance and razzamatazz in Sheffield, rather than John Major winning it, can I ever remember so many unpleasant and vituperative exchanges. Lord Kinnock never had the panache or gravitas to carry the electorate with him 23 years ago. I know it’s only going to get worse! What is it with folk today, that they cannot get their point across in a resolute manner, whilst keeping a civil tongue in their heads?
Perhaps I have underestimated Tony Blair’s charisma and flair. 15 years ago he was a ‘PR’ dream. As far as I am concerned he blew it over Iraq whilst being at the helm of government when the economy started to collapse. He virtually lost his credibility. Also he has been a wholly inadequate Middle-East envoy, not forgetting that he would have drowned us in membership of the EU without trace, left to his own devices. For some political commentators to think that Mr Blair grabbed the political initiative with scaremongering over the ramifications manifesting itself by withdrawing from Europe is far from the mark. Surely few listen to him these days. Frankly we are not interested. Only those who pay $100,000 to hear him speak are remotely interested in his blather!
This is some really interesting comments by Stephen Kelly, CEO of Sage – really worthy of note! –
Last night New York seemed to start to get the message that limited growth prospects, resulting in interest rate hikes remaining on hold, may call a halt to a sustained stock market stock market rally, especially if this quarter’s earnings, which start tonight with Alcoa’s results, are not that stellar! The Street of Dreams consequently closed slightly below the Plimsoll line, unlike European bourses, which were relatively speaking on fire, thanks in the main to the US interest rates conundrum remaining in the ‘in-tray’ for the time being! With the added incentive of QE in Europe and the hope that the EU economy is on the march, it was a question of ‘Gung-ho, Fixed Bayonets and over the tope’ yesterday, aided and abetted by decent service sector data – surreal or madness! In passing there was plenty of M&A in the air in New York; not only FedEX and TNT but also in the drug/biotech sector. Berkshire Hathaway agreed to buy 20 million shares in Axalta Coating from Carlyle Group. You just get that feeling that the pharmaceutical sector is on fire and looking for deals. There was also mutterings that someone was attempting a nibble at Twitter. That has to be someone very large in the social media/communications sector – up 3.99% last night – BUT whom? Then there was rumour of a Vivendi/Sky tie-up and also consideration given to ITV, with its clammy mitts ruminating all over a US acquisition!
Today, though is all about Royal Dutch Shell and BG Group supposedly agreeing a deal that will see Shell pay 1,350p/share (US$ 20.00/share) for BG made up of 383p share in cash (28%) and 0.4454 Shell B shares (72%) for each BG share. BG Group [prior to the bid was valued at £31 billion, so it appears that a 48% premium has been agreed. Shares in BG opened up this morning at 1270p and at the time of writing are 1255p (+36%) and Shell B shares were down 2.5%.
This strikes Panmure as a slightly defensive bid by Shell, who must be marginally concerned about their reserves going forward, to have paid such a hefty premium (48%) for BG’s gas (80%) of its value together, with access to Brazil and BG’s liquid gas development plans. Also with oil having halved in price, this may be a good time to pick up such useful energy assets, particularly if they can be split up at a future date. It appears that Shell CEO Ben Van Beurden and BG’s Helge Lund have been in conversation for some time. Helge Lund joined BG from Statoil, where he built a fabulous reputation as a deal maker, in January 2014, replacing the short tenure of Chris Finlayson, who replaced the irrepressible Sir Frank Chapman. There seems also to be synergy in this deal – cost cutting, increased capital expenditure and the oil against gas play! Lund has supposedly insisted on agreement subject to contract by 5th May. It is hard to see BG shareholders turning this deal down. There seem to be regulatory issues that could be a deal breaker.
Just for a little history and colour. Do you remember ‘Tell Sid?’ when British Gas went public in 1986 – one of many Thatcher privatisation initiatives? Centrica was hived off from BG in 2000. BG used to be a stock market darling until 2012. Then its shares were at 1550p. They fell, after a few disappointments and the fall in oil prices to 815p in February 2015 and had rallied to 906p last night.
Set out below is PANMURE GORDON’S professional evaluation –
Royal Dutch Shell/BG Group – Agreed takeover (RDSA LN, Mkt cap: £130bn; xBG LN, Mkt cap: 29bn) – Shell: Negative; BG: Positive
Shell and BG have agreed a takeover deal that will see Shell pay 1,350p/share (US$ 20.00/share) for BG made up of 383p share in cash (28%) and 0.4454 Shell B shares (72%) for each BG share. The price represents a 52% premium to 90 day VWAP and a 50% premium to yesterday’s close for BG. Following closure of the deal on these terms, BG shareholders will own 19% of the combined group. Shell has also announced that it intends to pay a dividend of $1.88/share for 2015, consistent with its current dividend policy and its previous announcement that it would pay a dividend of US$ 0.47/share in respect of 1Q15, and also that it intends to pay a dividend of at least that amount in 2016. Moreover, Shell expects to commence a share buyback programme in 2017 of at least US$ 25bn for 2017-2020. Shell expects the combination to generate pre-tax synergies of approximately US$ 2.5bn. Given the premium and the agreed nature of the deal, we expect it to succeed. However, it is not cheap at 51x 2015 consensus P/E and over US$ 22 per boe of proved reserves. The commitments Shell is making to maintain the dividend speak to an effort to support the price and provide comfort to shareholders that the deal is a good one for Shell’s current shareholders although it only sees it as being strongly accretive to earnings from 2018, despite the limited cash component, and it does not expect the dilution in returns to be neutral until 2018. BG’s deep water positions in Brazil and its operations in Australia and LNG more generally are a good fit for Shell, but overall this looks a somewhat defensive and arguably opportunistic bid by Shell for BG at a time when BG’s overall direction is somewhat uncertain, in our view. The deal lights a fire under the potential for further consolidation in the sector and there is likely to be renewed speculation of an ExxonMobil/BP tie up, we expect.
This week’s UK results – Wednesday – McBRIDE (TS), ROBERT WALTERS (TS), WS ATKINS (TS), BWIN (TS), DIGITAL ENTERTAINMENT (TS), UK MAIL (TS), Thursday – ARFEN, LAURA ASHLEY, MAJESTIC WINE (TS), 888 HOLDINGS (TS), PZ CUSSONS, Friday – HAYS PLC, ROCKHOPPER (TS).
US companies posting interim results – Wednesday – FAMILY DOLLAR, ALCOA, Thursday – WALGREENS, GAP, CONSTELLATION BRANDS, RUBY TUESDAY.
David Buik – market commentator
Panmure Gordon & Co