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Introduction: Royal Mail agrees £3.5bn takeover
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
It’s deadline day in the City today, with suitors for two UK-listed companies – mining giant BHP Billiton and Royal Mail – given until 5pm today to put up a formal bid, or walk away for six months.
And in the last few minutes, Czech billionaire Daniel Křetínský has announced a recommended cash offer for Royal Mail’s parent company International Distribution Services has been agreed.
IDS’s board has agreed to back a takeover worth £3.57bn, or 370p per share.
Earlier this month, IDS said it was minded to approve this improved offer from Křetínsy’s EP Group…
…and this morning Keith Williams, the chair of IDS, says the offer is”fair and reasonable” given the uncertainties ahead.
Williams says various guarantees have been reached with Křetínský, which will be presented to the government as soon as possible.
Those guarantees include ensuring that Royal Mail continues as the Universal Service Provider for five years after the deal is concluded, and maintaining a UK headquarters and tax residency for that period too (but what happens after that, you may wonder….).
Williams says:
The IDS Board has negotiated a far-reaching package of legally binding undertakings and commitments which provide our customers, employees and broader stakeholders with important safeguards.
These cover the provision of the one-price-goes-anywhere Universal Service Obligation (including First Class letters still delivered six days a week), the financial stability and maintenance of the IDS Group including Royal Mail, the maintenance of employee benefits and pensions, and ensuring Royal Mail remains headquartered and tax resident in the UK.
The deal could still face hurdles, though – chancellor Jeremy Hunt has indicated that the national security implications of such a bid would need to be scrutinised….
The agenda
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7.45am BST: French consumer confidence for May
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Noon BST: US weekly mortgage applications
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1pm BST: German inflation data for May
Key events
Anglo shares drop
Shares in Anglo American have dropped by almost 4%, following BHP Group’s decision not to make a firm offer.
They’ve dropped to around £24.58, down from £25.58 last night.
BHP’s final proposal, which valued Anglo at almost £39bn, had been worth £29.34 per share.
BHP: does not intend to make a firm offer for Anglo American
NEWSFLASH: BHP Group has walked away from its pursuit of Anglo American.
BHP, which had proposed paying almost £39bn for Anglo American, has given up after failing to persuade its rival miner to accept a takeover offer or extend talks.
The announcement comes about 45 minutes before the deadline to either put up a firm offer or walk away, and also comes hours after Anglo rejected BHP’s request for more time to hammer out an agreement.
Mike Henry, BHP’s chief executive officer, says:
“BHP will not be making a firm offer for Anglo American. BHP is committed to its Capital Allocation Framework and maintains a disciplined approach to mergers and acquisitions.
While we believed that our proposal for Anglo American was a compelling opportunity to effectively grow the pie of value for both sets of shareholders, we were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive
We remain of the view that our proposal was the most effective structure to deliver value for Anglo American shareholders, and we are confident that, working together with Anglo American, we could have obtained all required regulatory approvals, including in South Africa.”
Bloomberg: Sony in Talks to Buy Queen’s Music Catalog in Potential $1bn deal
Exciting news in the music industry… Sony Music is in talks to acquire Queen’s music catalog, Bloomberg reports.
The deal, to buy hits such as Bohemian Rhapsody, in what could be one of the biggest ever deals of its kind, says Bloomberg.
Here’s a flavour of the story:
Sony is working with another investor on a purchase that could potentially total $1 billion, people familiar with the matter said, asking not to be named discussing confidential information.
The talks, which also cover merchandising and other business opportunities, are ongoing and may not result in an agreement, according to the people. A spokesperson for Sony declined to comment. A representative for Queen could not be reached for comment.
Just in: Marks & Spencer has turned to property portal Rightmove for its new CFO.
M&S has told the City that Alison Dolan will join its board as Chief Financial Officer.
She will take over from interim CFO Jeremy Townsend who will remain in post until May 2025.
Stuart Machin, M&S’s chief executive officer, says:
“I am delighted to welcome Alison to M&S as our Chief Financial Officer.
We are fortunate to attract somebody of Alison’s calibre who will be a fantastic addition to the leadership team and with so much experience in fast paced, digitally led businesses, will help us in this next phase of transforming M&S.”
Dolan is currently CFO of Rightmove, who have told shareholders that she has a twelve month notice period and “a date for her departure will be agreed”.
The global unemployment rate is expected to fall slightly this year.
The International Labour Organization (ILO) forecast today that the worldwide jobless rate will dip to 4.9% this year from 5.0% in 2023, better than the 5.2% they forecast in January
The revision is mainly due to lower-than-expected unemployment rates in China, India, and high-income countries reported so far this year, the ILO said.
However, the ILO also warns that inequalities in labour markets remain, with a “persistent” lack of employment opportunities.
The election is the least interesting development in the UK right now.
That’s the verdict of City firm TS Lombard today.
They point out that there isn’t a lot of election uncertainty to excite the markets, with Labour set to gain the largest share of votes, adding:
The rumour mill over why the Conservatives called an early election has been turning, with some speculating the party wanted to avoid much worse data coming out this autumn or some other ominous event.
But the election could be seen as a positive because it reduces the economic uncertainty that might otherwise have persisted into the third quarter over which party will lead the government. What is more likely, though, is that it will prove a non-event; market pricing seems to reflect this outcome.
And indeed, the latest poll from YouGov shows Labour with a 27-point lead, at 47% support, ahead of the Conservatives with 20%.
Anxiety that US interest rates may not be cut as swiftly as hoped is weighing on Wall Street today.
The Dow Jones industrial average has dropped by 316 points, or 0.8%, in early trading to 38,536 points. That adds to yesterday’s losses, taking the Dow further from its record high over 40,000 points set this month.
The Russell 2000 index of small companies is down 1.3%, at a three-week low.
John Wood Group says it is evaluating the final takeover proposal made by rival Sidara today (see 2.21pm) and will make a further announcement in due course….
More takeover news: British oil services company John Wood Group has received a fourth and final takeover offer from Dubai-based rival Sidara.
Sidara says its new offer, of 230p per share, is a 52% premium to John Wood’s share price at the end of April, before its first offer.
By my maths, it values John Wood at £1.58bn, up from an earlier rejected £1.4bn offer.
Sidara says John Wood has not engaged with it, since the initial approach, adding:
Sidara does not believe that its proposal can be progressed unless the Board of Wood engages with Sidara and an extension to the deadline is granted.
Under the Takeover Code Sidara has until 5 June 2024 either to announce a firm intention to make an offer for Wood or to announce it has no intention to make an offer.
FTSE 100 on track for 6th day of losses in a row
Despite the jump in International Distribution Services’s share price today, the London market is sliding again.
IDS are now up 4% at 334p, moving close to Daniel Křetínský’s offer of 370p/share.
That makes IDS the second-biggest rise on the FTSE 250 index of medium-sized companies listed in London, which is down 0.85% today.
The blue-chip FTSE 100 index is in the red too, down 0.5%, and on track for its sixth fall in a row.
Grocery technology firm Ocado are the top faller, down 5%, putting it on track to be ejected into the FTSE 250 when the indices are next reshuffled.
Fiona Cincotta, senior financial market analyst at City Index, explains:
“The FTSE is falling, adding to losses from the previous session, as the UK index continues to retreat from its all-time high earlier this month.
Stronger-than-expected US data and hawkish Fed comments have hurt risk sentiment across the markets.
News that the IMF has upwardly revised China’s growth forecast to 5% after a solid first quarter and recent supportive policy measures from Beijing have helped oil majors higher but have failed to boost the miners. Anglo-American is trading down 1.5% ahead of a key deadline today for a takeover deal with BHP.
The jump in German inflation this month (see earlier post) illustrates the stickiness of inflation in the entire eurozone, says Carsten Brzeski, global head of macro at ING.
Brzeski told clients:
Today’s German inflation data not only illustrates the ongoing impact of base effects and earlier government measures on present inflation but also stresses how sticky inflation remains. That stickiness looks set to continue as favourable energy base effects are petering out while, at the same time, the economy is gaining traction and wages are increasing.
However, it probably won’t stop the European Central Bank cutting interest rates next week. he adds:
Today’s increase in German headline inflation is a good reminder of how difficult the last mile of bringing inflation sustainably back to 2% will be for the European Central Bank. Still, with an entire choir of ECB Governing Council members once again singing about rate cuts, anything other than a cut of 25bp next week would be a major surprise, not to mention a severe reputational loss for the central bank.
