FTSE Slides; ABB To Buy Chloride Group

Arthi Gupta, Mayank Mehta and Sanjay Barot
08 Jun, 2010
New York City

UK stocks decline after rating agency Fitch says the country needs a strong medium term fiscal consolidation strategy. Switzerland-based ABB to buy UK-based Chloride Group for $1.25 billion.

[R]4:30 PM London – UK stocks decline after rating agency Fitch says the country needs a strong medium term fiscal consolidation strategy. Switzerland-based ABB to buy UK-based Chloride Group for $1.25 billion.[/R]

Jittery investors feared a contagion effect arising from economic instability. However, U.S. Federal Reserve Chairman Ben Bernanke said the euro stabilization package of nearly $1 trillion was enough to protect Greece, Portugal and Spain from volatile credit markets for a number of years. But he acknowledged investors were unconvinced Europe''s debt problems would be resolved, and said more rescue money may be needed.

In London FTSE 100 Index traded lower 66.13 or 1.30% to 5,002.93 and the pound edged lower to close at $1.442 and close at €1.207.

Rating agency Fitch said today that the scale of the UK''s fiscal challenge is formidable and the country needs strong medium term consolidation strategy that includes a faster pace of deficit reduction.

Fitch said UK''s ''AAA'' rating with stable outlook is supported by its strong policy institutions, advanced, diversified and flexible economy, exceptional financing flexibility and historical track record of fiscal consolidation. However, the rise in public debt ratios since 2008 is faster than any other ''AAA'' rated sovereign and the primary balance adjustment required to stabilize debt is amongst the highest of advanced countries.

The rating agency noted that Britain''s primary deficit is nearly twice as large as that seen in previous episodes of fiscal deterioration in the UK in the 1970s and early 1990s.

It said the country''s existing medium term fiscal consolidation plans, set out in the April 2010 budget are unambitious as they only achieve public debt stabilization at the end of the medium-term horizon and are based on arguably optimistic growth assumptions. Furthermore, planned expenditure cuts in the April 2010 budget were not articulated in detail, undermining their credibility.

Further, Fitch said given downward revisions to last year''s deficit outturn and the spending cuts now being implemented by the new coalition government, it is highly likely that the 2010-11 deficit target will be lowered from the 11.1% April 2010 budget figure.

The rating agency said UK needs more ambitious deficit reduction given that other European sovereigns are strengthening their fiscal consolidation plans and market concerns about sovereign risk in advanced countries are increasing.

""A more ambitious deficit reduction path - with borrowing 1% lower than the April 2010 budget throughout the medium term - would result in an earlier peak in debt to GDP and a clearly declining debt path within the medium term horizon,"" Fitch said.

""Achieving such a path purely on the basis of further spending cuts, would imply unprecedented real declines in primary spending,"" it added.

The value of retail sales in Great Britain rose 0.8% in May 2010 on a like-for-like basis over May 2009. The British Retail Consortium reported today that on an overall basis, total sales value rose 3.0% from a year earlier. The figures compared to a fall of 0.8% on a like-for-like basis and a 0.8% overall basis for May 2009. Non-food non-store sales rose 21.9% from a year ago.

Switzerland’s ABB today announced an all-cash deal to buy Britain’s Chloride Group for £860 million or $1.25 billion.

The Swiss group, which sells power equipment to oil and gas companies, said it would offer 325 pence per share to Chloride. ABB''s offer price of 325 pence per Chloride share represents a premium of about 55.5%, based on the closing price of 209 pence per Chloride share on April 23, 2010, the last business day before Chloride entered into an offer period.

The acquisition must be approved by Chloride’s shareholders, the UK High Court and certain regulatory authorities.

In the transaction, ABB is being advised by Credit Suisse. Citi and Investec are acting as joint financial advisers and corporate brokers to Chloride.

On the London Stock Exchange, Chloride Group Plc ((CHLD.L)) is currently trading at 342.00 pence, up 53.40 pence or 18.50%, on a volume of 1.2 million shares. Following the news, shares of Chloride rose over 18% in morning trade on the London Stock Exchange.

ABB Ltd. ((ABB)) closed Monday''s regular trading session at $16.27, down $0.18 or 1.09%, on a volume of 3.05 million shares.

Gainers & Losers

Advanced Computer Software plc fell 0.1% to 37.70 pence. The provider of software and information technology services said fiscal year 2010 revenues rose 314% to £30.2 million from £7.3 million a year ago. Net profit for the year rose 301% to £3.2 million or 1.0 pence per diluted share compared to net profit of £791,000 or 0.8 pence per share a year ago.

Aggreko PLC, the provider of temporary power and temperature control services rose 3.5% to 1,402.00 pence.

Brooks Macdonald Group plc rose 0.1% to 775.00 pence after the fund manager announced an agreement has been reached to acquire the entire issued and to be issued share capital of Braemar. The offer price is 2.25 pence in cash for each ordinary share.

Carclo plc traded unchanged at 154.50 pence after the supplier of technical plastic products said fiscal year 2010 revenues fell 7% to £81.2 million from £87.4 million a year ago. Net profit for the year rose 21% to £3.5 million or 5.9 pence per diluted share compared to net profit of £2.9 million or 5.1 pence per share a year ago.

Chloride Group PLC, the power system supplier surges 17.9% to 340.40 pence.

Compass Group PLC fell 1.1% to 543.00 pence after the catering firm announced today the acquisition of Southeast Service Corporation for a cash consideration of $65 million or £45 million.

Rockhopper Exploration Plc, the oil explorer rose 2.3% to 297.00 pence.

Tesco Plc, the international retailer fell 2.7% to 395.90 pence.

VP plc fell 1.5% to 187.00 pence after the equipment rental firm said fiscal year 2010 revenues fell 15% to £134.2 million from £157.5 million a year ago. Net profit for the year fell 32.5% to £10.2 million or 24.36 pence per diluted share compared to net profit of £15.1 million or 35.30 pence per share a year ago.

Wm Morrison Supermarkets PLC fell 0.8% to 259.70 pence.

Wincanton plc rose 0.4% to 230.00 pence after the outsourcing specialist has entered into a joint venture with international service and business outsourcing provider, Serco.

WH Smith PLC, the retail company fell 4.1% to 435.20 pence.