FTSE Surges 4.6%; Vedanta, Anglo American Deal

Arthi Gupta, Mayank Mehta and Sanjay Barot
10 May, 2010
New York City

U.K. stocks surged after the European Union offered a large package to stem widening financial crisis. Bank of England holds key rate and bond purchase plan. Vedanta Resources plc agrees to acquire zinc assets from Anglo American Plc. Qatar based fund acquires the department store Harrods.

[R]4:00 PM London, 11:15 AM New York – U.K. stocks surged after the European Union offered a large package to stem widening financial crisis. Bank of England holds key rate and bond purchase plan. Vedanta Resources plc agrees to acquire zinc assets from Anglo American Plc. Qatar based fund acquires the department store Harrods.[/R]

U.K. stocks soar after European policy makers sanctioned a rescue package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis from spreading.

The EU offered a large financial package to troubled member nations and altered the way the region manages its finance. In an emergency meeting that lasted nearly fourteen hours, the EU leaders and ministers hammered out the size of the financial package and permitted member nations to lend one another.

Separately, the European Central Bank also relaxed its rules of acceptable collateral. However, the agreement to support member nation does not address the ballooning debt problem in the region.

The International Monetary Fund also agreed to offer as much as half of the funds offered by the EU that may add up to $320 billion.

EU finance ministers reached agreement on a support plan for nations facing financial meltdown that will offer €440 billion in loans from euro-zone governments and €60 billion from an E.U. emergency fund, in addition to €250 billion from the International Monetary Fund.

Moreover, the U.S. Federal Reserve said Sunday that it would revive an emergency lending program used during the financial crisis. The Fed offered swap lines as it has in 2008 and agreed to lend billions of dollars through foreign central banks, including the ECB to facilitate lending in home countries in dollar.

Britain, the EU’s third-largest economy, won’t contribute to a euro rescue fund, though it backs efforts to restore stability, Chancellor of the Exchequer Alistair Darling said.

The pound rose to a 4-day high against the U.S. dollar and the yen, but it fell to near a 3-week low against the euro and the Swiss franc.

The pound fetched 0.8656 against the euro, 1.6473 against the Swiss franc, 140.16 against the yen and 1.5013 against the dollar.

The Bank of England announces key interest rates unchanged at 0.5% and maintained its £200 billion asset purchase scheme.

Liberal Democrat leader Nick Clegg met Gordon Brown and David Cameron as talks continue over forming the next UK government. The Conservatives failed to win an outright majority and they have been forced to talk with the Liberal Democrats since Friday.

After a seven-hour session of ""positive and constructive discussions"" on Sunday, two parties will meet again over the next 24 hours to try to forge a power-sharing deal, said William Hague, the Conservative Party''s top foreign-affairs official.

Economic revival and reducing a deficit forecast by the European Union at 12% of GDP this year would form the “central part” of an agreement, Hague told reporters yesterday.

Vedanta and Anglo American in Africa Asset Deal

Miners Vedanta Resources plc and Anglo American plc have signed a definitive share purchase agreement under which Vedanta, through one of its controlled group companies would acquire Anglo American Zinc for a total consideration of $1.338 billion on an attributable, debt and cash free basis.

Of the total consideration, $698 million relates to the Skorpion mine in Namibia, $308 million is for the Lisheen mine in Ireland and $332 million relates to Anglo American''s 74% interest in Black Mountain Mining in South Africa.

''''Anglo American Zinc''s operations are highly profitable with long term development potential. Anglo Zinc is an excellent operational and strategic fit with Vedanta''s existing zinc business and will create significant long term value for Vedanta''s shareholders, '''' Vedanta noted in a statement.

The deal is expected to increase Vedanta''s zinc and lead production capacity significantly. Annualized production capacity is expected to increase to 1,462 ktpa from 1,064 ktpa, representing 11% of the global zinc market.

Qatar Fund Buys Harrods for £1.5 Billion

Mohammed Al Fayed agreed to sell London department store Harrods to the Qatari royal family''s investment company for a reported £1.5 billion or $2.3 billion.

The sale will include all parts of the Harrods group, including Harrods Estates and a charter aircraft service. Qatar Holdings is the investment arm of the emirate''s sovereign wealth fund, Qatar Investment Authority. Fayed will remain as honorary chairman.

Costa, chairman of asset managers Lazard International, who advised the Al Fayed family trust on the sale, said Qatar Holding had been ""specifically chosen"" by Al Fayed because he believed it had the ""vision and financial capacity"" to support the long-term growth of the store. Qatar Holding was advised by Credit Suisse Group.

U.K-based insurer Prudential Plc is reportedly close to securing regulatory approval for its acquisition of American International Group Inc.''s main Asian life insurance unit, American International Assurance Co. Ltd. or AIA, as it moved to satisfy the U.K. financial regulator''s conditions for approving a rights issue to fund the deal.

In London FTSE 100 Index closed higher 239.10 or 4.67% to 5,362.12 and the pound edged higher to close at $1.501 and edged lower to close at €1.157.

Gainers & Losers

BG Group plc increased 4.6% to 1,063.00 pence after the company will acquire a 50% interest in companies that hold EXCO’s producing and non-producing assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia, USA.

British Airways Plc gained 7.1% to 205.90 pence after the company said passenger capacity, measured in available seat kilometers was down 20.9% on April 2009. Traffic, measured in revenue passenger kilometers fell by 22.4%.

Centrica plc, the integrated energy company advanced 3.6% to 285.90 pence.

Croda International Plc increased 5.8% to 974.00 pence after the company announced that it has agreed to sell its Emmerich Site and associated business in Germany to KLK Emmerich GmbH, a subsidiary of the KLK Group for €60.5 million.

Diploma Plc added 2.8% to 220.00 pence after the technical products supplier said first half revenues rose 7% to £86.2 million from £80.3 million a year ago. Net profit for the first half rose 107% to £11.6 million or 10.3 pence per diluted share compared to net profit of £5.6 million or 5.0 pence per share a year ago.

Dignity plc rose 2.7% to 626.00 pence after the funeral home operator reported operating profit includes £1.5 million in respect of recoveries from the pre-arranged funeral plan trusts.

Gem Diamonds Limited gained 8.4% to 273.50 pence after the diamond mining company reported the total contained resource carats have increased by 1.2 million carats to 20.5 million carats.

Interserve Plc rose 3.5% to 216.25 pence after the support services group revenues continue to grow as the business benefits from the contracts it has won in the last eighteen months.

Lonmin Plc added 4.6% to 1,764.00 pence after the platinum miner said first half revenues rose 52% to $661 million from $436 million a year ago. Net profit for the first half was $30 million or 15.5 cents per diluted share compared to net loss of $112 million or 67.9 cents per share a year ago.

Rockhopper Exploration Plc, the oil and gas exploration company surged 30.3% to 189.00 pence.

Vedanta Resources plc, the zinc and copper increased 8.4% to 2,511.00 pence after it agreed to acquire Africa based assets of Anglo American Plc which analysts termed as “win-win” for both companies.

Vectura Group plc, the respiratory inhaler firm surged 14.2% to 38.00 pence.