Anglo American Rejects Xstrata Bid; FTSE Down

123jump.com Staff
22 Jun, 2009
New York City

UK stocks closed lower after weakness in global markets. Merger and deal news dominated trading sentiment. Xstrata proposal to acquire Anglo American was rejected by its board. UK home repossessions were lowered to 65,000.

[R]1:00PM New York, 6:00PM London – UK stocks closed lower after weakness in global markets. Merger and deal news dominated trading sentiment. Xstrata proposal to acquire Anglo American was rejected by its board. UK home repossessions were lowered to 65,000.[/R]

Stocks in London declined on the fall in energy stocks after crude oil prices fell on a bearish outlook on the state of the global economy.

The World Bank reported today that it expects the global economy to shrink 2.9% this year, from the previous estimate of 1.7% decline in March. Crude oil prices slipped 3.8% to $66.60 a barrel.

However, market trimmed some of the losses after the government report indicated that home repossessions have been revised to 65,000 from 75,000.

In London trading FTSE 100 declined 2.6% or 111.88 to 4,234.05.

Of the FTSE 100 index stocks 4 advanced, 97 dropped, and one was unchanged. Anglo- American led gainers in the index shares with a rise of 4.6% on reports Swiss miner Xstrata is interested in merging with the company.

Repossession Forecasts Slashed to 65,000

Council of Mortgage Lenders reported today that it revised its forecast for repossessions for this year to 65,000 from 75,000 made earlier on lower interest rates.

The CML also expects about 360,000 mortgages to be in arrears equivalent to 2.5% of all mortgage balance by the end of the year.

Housing transactions and gross lending remain unchanged at 700,000 transactions and £145 billion of gross lending.

Net lending is projected to drop by £5 billion from £25 billion previously estimated.

Separately, Rightmove said the average cost of asking prices fell 0.4% to £226,436 in June from the previous month when it increased 2.4%.

House prices declined 5.5% on the year, while the values dropped most for East Anglia, North and the Southeast. However increases were realized in East Midlands, Wales and the Northwest.

Royal Institution of Chartered Surveyors noted today that the percentage of agents reporting declining rents surpassed those reporting higher rents by 55 points, rising the most in 10 years.

Anglo Board Opposed to Xstrata Merger

TimesOnline reported today that the Anglo-American board is opposed to the proposed £41 billion takeover by Swiss miner Xstrata.

Xstrata intends to merge is coal operations in Queenslands with Anglo-American.

The report however notes that the proposal is ""at a very preliminary stage and that there is no certainty that any transaction will be forthcoming"".

Anglo board is of the opinion that that the remaining independent is a better option and no material cost savings can be achieved through acquisition.

According to the report, there is a limited scope for cost savings in platinum and diamond operations and where there is very little overlap between the two companies.

However, Xstrata says the merger will create ""a premier portfolio of operations diversified across commodities and geographies, with enhanced scale and financial flexibility to fund future growth.""

Gainers & Losers

Anglo American surged 4.6% to 1,698 pence after Switzerland based Xstrata offered a ‘merger of equals’ to the company. Lonmin Plc declined 8.2% to 1,148 pence because the merger may force Xstrata to sell its 24.9% stake.

Energy stocks fell as crude oil prices tumbled 3.8% to $66.6 per barrel. Eurasian Natural declined 6.9%, Xstrata tumbled 6.7% and Tullow Oil fell 6.2%.

British Airways declined 8.7% to 124.60 pence after Richard Branson of Virgin Atlantic said the UK government should let British Air let go bust if its financial problems worsen. That prompted quick response from the national flag carrier that the company is not looking for funds from the government.

Aviva Plc decreased 2.3% to 329 pence after it sold its Australian life insurance and advisor platform business to National Australian Bank for A$825 million in cash, A$40 million dividend and A$60 million of working capital and other adjustments.

Brit Insurance Holdings added 2.3% to 179 pence after proposed an offer to acquire Chaucer Holdings for 0.23 new Brit shares. Chaucer closed at 42 pence.

Segro increased 1.1% to 22.75 pence and Brixton plunged 31% to 43.50 pence ad are in merger discussion that involves cash and stock. Segro is prepared to pay 1.75 of its own shares for each share of Brixton.

Independent News & Media plunged 19% to 26 cents after it proposed a deeply discounted rights offering to repay debt due in May of 200 million euros.

Yell Group plunged 14% to 25.50 pence after it said that the company is looking to renegotiate the debt covenants.

FTSE 100 Index Movers

Of the stocks in the FTSE 100 index, 4 increased, 97 declined and 1 were unchanged.

British Airways Plc decliners in the FTSE 100 index with a loss of 8.65% followed by losses in Vedanta Resources plc of 8.44%, in Lonmin Plc of 8.16%, in Kazakhmys PLC of 7.92% and in Fresnillo Plc of 7.86%.

Anglo American plc led gainers in the FTSE 100 index with a rise of 4.62% followed by increase in Smiths Group plc of 3.47%, in Bunzl plc of 0.41%, in Severn Trent Plc of 0.27%, in Admiral Group plc of 0.00%.
Europe Markets Review

In London FTSE 100 Index closed lower 111.88 or 2.57% to 4,234.05, in Paris CAC 40 Index decreased 98.02 or 3.04% to close at 3,123.25 and in Frankfurt DAX index lower 146.06 or 3.02% to close at 4,693.40. In Zurich trading SMI decreased 111.22 or 2.05% to close at 5,310.37.