UK Home Prices Fall; Vedanta $9.6 B Deal

Arthi Gupta
16 Aug, 2010
New York City

The UK indexes fall tracking losses in energy stocks. The UK commercial property price growth slackens in July and home prices drop 1.7% in August. Aviva confirmed rejection of RSA

[R]4:30 PM London – The UK indexes fall tracking losses in energy stocks. The UK commercial property price growth slackens in July and home prices drop 1.7% in August. Aviva confirmed rejection of RSA £5 billion cash offer. Vedanta agreed to acquire stake in India unit of Cairn Energy for about $9.6 billion.[/R]

U.S. and European markets declined. Balfour Beatty received approval for Eagle P3 commuter rail project in Denver.

The Cabinet Office in Japan stated gross domestic product grew 0.1% in the second quarter of 2010 compared to a revised 1.1% growth in the first quarter. On an annualized basis, GDP for the quarter rose 0.4%, compared to a 4.4% annualized growth in the first quarter. The report further noted that nominal GDP declined 0.9% on quarter and 3.7% on annualized basis.

China surpassed Japan after Japan reported second quarter GDP at $1.28 trillion, lower than the $1.33 trillion GDP in China. China is expected to maintain 10% growth rate in the current year and Japan is estimated to expand at less than 1%.

China after rapid growth of double digits in the last three decades is also the largest exporter in the world and the largest passenger car market.

In London, FTSE 100 Index traded lower 8.00 or 0.12% to 5,267.44 and the pound edged higher to close at $1.5673.

British commercial property prices rose at a slower pace in July from June, according to data released by Investment Property Databank on Friday.

Commercial property values in July recorded a monthly growth of 0.2%, following a 0.5% rise in June. Commercial property capital values grew 15.4% since last August.

In another report, data from LSL Property Services/Acadametrics showed that home prices registered its first rise in five months. However, prices increased only 0.1% on a monthly basis. Further, housing market transactions improved for second consecutive month, rising 11% in July to an estimated 72,100.

The average asking price for a house in the United Kingdom dropped 1.7% in August compared to 0.6% decline in July, according to a report published by property Web site Rightmove today. On an annual basis, home prices rose 4.3% compared to 3.7% in the previous month. The average home price was £232,241.

The company blamed an oversupply of property on the market for the fall in prices. Rightmove commercial director Miles Shipside said the rise in supply was unmatched by demand, with few buyers able to push through purchases and that this had pushed down a greater increase in asking prices.

Aviva plc, the insurer confirmed that its board rejected the RSA Insurance Group Plc''s £5 billion cash proposal to acquire its general insurance businesses in the UK, Ireland and Canada, excluding RAC and Health.

Further, Aviva said its board decided unanimously that RSA''s proposal was unacceptable and not in the best interests of Aviva shareholders and was communicated to the Chairman of RSA on August 6, according to the board.

Aviva confirmed that on July 28 it received a conditional proposal from RSA to acquire Aviva''s general insurance businesses. The proposal would have left the pension liabilities of the GI Business with Aviva as well as the general insurance businesses in the Netherlands, France, Italy, Poland, Turkey and Singapore.

In a response to rejection of its offer by Aviva plc, RSA Insurance Group Plc said that it remains open to discussions with Aviva. Further, RSA said it considers that its proposal represents fair value for the Target Businesses and would be in the interests of both sets of shareholders.

Balfour Beatty Plc, the infrastructure group said that Denver Transit Partners reached financial close for the design, build, finance and operation of the Eagle P3 commuter rail project in the Denver metropolitan area of the U.S.

The Denver Regional Transport District selected DTP as the preferred bidder for the Eagle project and Balfour Beatty is part of the team. Balfour Beatty''s share for phase one is valued at £560 million or $875.41 million.

The project includes a new 22.8 mile commuter rail line from Union Station to Denver International Airport, a new 11.2 mile commuter rail line from Union Station to Wheat Ridge, a two mile initial segment of the Northwest Rail Corridor, and a new commuter rail maintenance facility.

The Eagle project''s engineering, procurement and construction contract is valued at $1 billion and Balfour Beatty will be responsible for its 50% (or $500 million or £333 million) share. Balfour Beatty will also get a 33% (or $340 million or £227 million) share of the project''s $1 billion 29-year operations and maintenance contract.

Hunting plc, the energy services provider said it is acquiring Innova-Extel Acquisition Holdings Inc. from American Capital, Ltd. for a cash consideration of $125 million.

Innova-Extel is a provider of ""harsh environment"" electronics technology to the energy industry. The company expects to complete the deal by the end of August, subject to certain conditions.

Hunting expects the acquisition to add a significant element to its well construction portfolio and to be earnings enhancing in 2010, before taking account related acquisition costs.

Dennis Proctor, chief executive of Hunting said, ""Innova-Extel adds a very important part to our technology strength for high temperature, high pressure applications. Operators rely on this technology to acquire real time data in downhole measurements. Combined with the growth of directional and horizontal drilling and our existing product offering, this acquisition will further strengthen our position in complex drilling environments.""

Vedanta Resources plc (agreed to acquire 51% to 60% of Cairn India Limited, a unit of Cairn Energy plc for an aggregate consideration of about $8.5 billion to $9.6 billion in cash. The transaction is expected to close by the first quarter of 2011.

Following the deal closure, it is expected that Vedanta will hold 31% to 40% of Cairn India directly and Sesa Goa Ltd will hold 20%.

The company noted that it will buy shares from Cairn Energy at a price of Rs 355 per share. Vedanta will also pay a non-compete fee of Rs50 per share.

The company said the deal is immediately accretive to the earnings per share.

National Incident Commander Thad Allen on Saturday issued a directive to BP plc to conduct more pressure testing on the busted well in the Gulf of Mexico ahead of plans to resume drilling of a relief well.

In a letter to BP chief managing director Bob Dudley, Allen said BP needs to provide additional analysis and plans that will ensure no more oil is released when the company drills a relief well and pumps mud and cement to the bottom of the Macondo well to permanently kill it in a procedure known as ""bottom kill.""

Gainers & Losers

Atlas Estates Limited slumped 4.42% to €86.50after the closed-ended investment company stated first half revenue increased 140% to €59.4 million from €24.7 million in the prior year period. Net loss in the period narrowed 74% to €8.28 million or 17.67 euro cents per basic share to net loss of €32.25 million or 68.83 euro cents per basic share in the previous year.

Delcam plc rose 1.89% to 270.00 pence after the software firm reported revenues for the first half improved 12% to £18.10 million from £16.10 million in the comparable period a year ago. Net profit in the period surged 256% to £892,000 or 11.2 pence per share from net income of £250,000 or 3.2 pence per share in the same period of last year. The board declared an interim dividend of 1.35 pence per share.

Latchways plc gained 1.20% to 708.40 pence after the safety systems maker said trading for the year to date is in line with management expectations and the board expects full year performance to be in line with, or a little ahead of, current market forecasts. The company added that its balance sheet remains strong, with the net cash position being further enhanced since the year end.

Michael Page International plc 1.18% to 368.80 pence after the recruitment consultancy reported revenues for the first half increased 7.9% to £393.5 million, compared to £364.7 million reported in the year-ago period. Net income in the period increased 46.6% to £41.5 million or 12.8 pence per diluted share, compared to net income of £28.3 million or 8.7 pence per share reported in the corresponding period of the previous year.

Profit before tax for the six months ended June 30, 2010 advanced 42% to £61.4 million from £43.2 million in the six months ended June 30, 2009.

Source BioScience Plc declined 2.48% to 7.07 pence after the healthcare and biotech developer said it experienced “good trading conditions” in the second quarter, which was in line with the first quarter results. In addition, the group said it continues to trade “in line with management expectations.”