UK Recovers 10% Loss in the Week

123jump.com Staff
25 Jan, 2008
New York City

UK stocks fell after a wild week. Rate decline in the U.S. by 0.75% and fiscal stimulus package from the U.S. lawmakers revived the flagging confidence in the U.S. economy. Stocks in the UK rebounded on Tuesday and Thursday but edged lower on Friday. For the week, FTSE 100 lost nearly 10% and managed to regain nearly all the losses. Imperial Tobacco rose after it plans to gain full control of Spanish tobacco company. Gold rose on South African production problems. Pound rebounded.

[R]3:00PM New York, 8:00PM London - Homebuilders, financial stocks drag U.K 0.12% down. Kingfisher appoints Ian Cheshire Group Chief Executive[/R]

Stocks in London plunged in the afternoon session led by homebuilders and financial stocks.

In London trading FTSE 100 fell 0.12% or 6.8 to 5,869.00.

Of the 102 FTSE100 stocks, 39 gained, 60 declined and 3 were unchanged. Imperial Tobacco led advancing stocks with a rise of 9.02%, followed by Vedanta Resources gaining 7.21% as oil prices increased and metals rose to record highs.

Merger News

Carlsberg and Heineken announced today that the company Scottish & Newcastle boards have agreed for 7.8 billion pounds merger deal. Under the terms of the deal Carlsberg will assume 54.5% equity, while Heineken will take 45.5%. Scottish & Newcastle close up 2.22%.

The Scotland based brewer will be split along the geographic lines with operations in China, Vietnam, France, and Russia controlled by Carlsberg and in India, UK, US, Portugal, Ireland, and Belgium will be controlled by Heineken.

The deal still needs approval of shareholders.

Old Mutual announced today on its website that discussions are continuing with Royal Bafokeng Holdings Limited concerning the potential sale by Old Mutual to RBH of a controlling stake in Mutual & Federal Insurance Company Limited.

Gold Stocks

Gold prices rose 1.1% to reach a record $922.59 per ounce, while platinum gained 2.8% to $1,655 an ounce after South African power utility Eskom Holding Limited asked mining companies to reduce energy consumption. The companies had agreed on power cuts that could lower the production between 10% and 15%.

AngloGold Ashanti Limited and Gold Fields have stopped production in the country. Xstrata Plc jumped 3.15% and BHP Billiton spiked 2.24% on the news.

Crude oil prices also advanced as investors surmised that U.S. stimulus plan will keep the demand for crude oil and gasoline rising.

Kingfisher

UK retailer, Kingfisher announced today on its Web site that the retailer has appointed Ian Cheshire as Group Chief Executive effective next Monday. Kingfisher’s Chairman Peter Jackson said Cheshire is better placed to spearhead changes to improve returns.

Cheshire however said there is need to ensure that the company’s cash and capital is deployed more productively, while tightening the control of costs.

Other leading retailers also declined. Next Plc shed 3.91%.

Leading Gainers and Losers

Of the FTSE 100 index stocks, Imperial Tobacco led gainers with a rise of 9.07% followed by gains of 7.21% in Vedanta Resources, of 5.74% in British Energy, of 3.92% in Rio Tinto Plc, and of 3.92% in Carphone Warehouse.

Imperial Tobacco rose on reports the company is planning to bid 910 million euros to fully takeover Spanish cigarette company Compania de Distribucion Integral Logista SA.

Persimmon led decliners in FTSE 100 index stocks with a drop of 6.88% followed by losses of 6% in Old Mutual Plc, of 5.94% in Alliance & Leicester, of 5.54% in Taylor Wimpey, and of 5.09% in Anglo American Plc.



[R]2:00PM New York, 8:00PM Frankfurt – S&N board has agreed to a joint bid between Heineken and Carlsberg at 800p.[/R]

A joint bid by Denmark based Carlsberg and Holland based Heineken for Scottish & Newcastle plc was accepted at 800 pence (or $16 per share). The Edinburgh, UK based company has been in discussion with two beer giants for three months and discussion gained momentum after the unsolicited offer was made public.

The joint bid, revised three times values the beer company at 7.8 billion pounds ($15.6 billion) and values S&N operating earnings or EBITDA for the year 2006 at multiple of 14.3.

The Offer of 800 pence per S&N Share represents a premium of 50.7% to the closing price of 531 pence per S&N Share on 28 March 2007, being the date immediately before speculation first arose around a possible offer for S&N.

The offer is at a premium of 25.7% to the closing price of 637 pence per S&N Share on October 16, 2007, last trading day before the public announcement of the merger discussion.

The joint bid was revised three times for S&N which hurt the stock prices of bidders on the worries that the companies may overpay. The first two offers at 720 pence in October and 750 pence in November were rejected by S&N. The jointly controlled Russian BBH was the most sought after in the deal.

Following completion of the Offer, S&N’s share of Baltic Beverages Holdings, as well as the French, Greek, Chinese and Vietnamese operations will be transferred to Carlsberg.

Heineken will continue to hold the remaining businesses, in the UK and Ireland, Portuguese, Finnish, Belgian, US and Indian operations.

Following the merger Heineken will retain its number one position in the UK market and number 2 positions in Portugal, Ireland, Finland, and Belgium. Heineken estimated that the deal will save 120 million pounds by the fourth year annually with 70% resulting from cost savings and 30% from higher revenue.

Carlsberg hopes to benefit from its strong position in France and gain access to two of the fastest growing markets in the world, China and Russia. Carlsberg and S&N own equal stake in BBH, with presence in Russia, Ukraine and other Central European nations. Carlsberg in a presentation to analysts suggested that beer volume in the Eastern European markets is expected to rise annually by 30% in the next four years.

Baltic Beverages Holdings AB was sought after by Carlsberg to tap into the rising demand for beer in Russia. Russia has managed to transform its command control economy to consumer based economy on the rising exports of minerals, crude oil and gas. Russian consumers have developed a taste for Western quality products and retail sales of imported automobiles, to expensive clothes, to food and beverages are growing.

Carlsberg is holding leading market position in France but its market share has declined in a highly regulated market from 41% in 2001 to 36% in 2007. Carlsberg expects beer volume in Western Europe to decline annually by 1% in the next five years. Carlsberg has number two position in Greece with 10% market share and expects the market to grow in the longer term.

Carlsberg owns 17.5% in Chonquin Beer Company in China which is ranked fifth in market share in the country. Heineken will now control 39% stake controlled by S&N in Kingfisher, the Indian market leader.

Carlsberg and S&N are still contesting shareholder agreement in an arbitration court on the ownership of Russian and Central European market leader, BBH. If shareholders of S&N fail to approve proposed offer, S&N is likely to pursue Carlsberg for breaking the shareholder agreement that prohibits it from making offer for S&N.

Heavily leveraged Carlsberg is likely to face a rating downgrade from rating agencies if the deal goes through. Carlsberg plans to pay for the deal by issuing rights and a debt offering. Carlsberg has new bank facilities totaling of Danish Kroner 29 billion and will issue equity rights offering of no more than DKK 31.5 billion.

The directors of S&N, were advised by Deutsche Bank, Rothschild and UBS, consider the terms of the offer to be fair and reasonable.

In London FTSE 100 Index closed lower 6.80 or 0.12% to 5,869.00, in Paris CAC 40 Index decreased 37.17 or 0.76% to close at 4,878.12 and in Frankfurt DAX index lower 4.33 or 0.06% to close at 6,816.74. In Zurich trading SMI decreased 4.09 or 0.05% to close at 7,686.88.