30 July 2015
Week in Brief: BUSINESS & THE CITY
SMART COP: Great Scotland Yard, historical home of the Metropolitan Police, though government offices for many years, has been sold by Galliard, a development firm, to Lulu Group International, the international business vehicle of Indian tycoon Yusuffali Kader. Galliard are converting the building to a luxury hotel, which Mr Kader intends to operate via Steigenberger Hotels with whom he has other ventures. The price paid was said to be £110m.
DRUG DEALS: The pharmaceuticals market is going through a typhoon of corporate changes, much of it amongst firms that the patient in the street has probably never heard of. The latest deal is by Teva, the world’s largest maker of cheap medicines – the sort of boxes and jars to be found in your local chemist – who are paying £40bn for Allergan’s generics business, head-quartered in Dublin. This follows just a few days after Teva withdrew from a deal to buy Mylan, a similar business based in Amsterdam. Meanwhile, Mylan continues its efforts to take over its main rival Perrigo. Also on the takeover trail is the massive USA business Valeant, who have been stalking Allergan. The deal with Teva is thought to be part of Allergan’s defences against the American predator.
DOSH DELIVERED: One of the great growth businesses in major cities in the west is food delivery – not your local Indian sending round a moped with a takeaway, but moving up a layer of sophistication. Striving to be market leader in London is Deliveroo , founded only in 2013 and operating from a head office in Soho. Its business model is to source food from a range of top quality restaurants – often those who do not have their own takeaway service – and whisk it round to the consumer via their fleet of fit young cyclists, or motor bikes for destinations further afield. It has proved hugely popular and now operates in 22 urban centres in the UK and in Paris, Dublin, Munich, and Berlin. Now the company has raised a further £45m, mainly from existing backers, to add to the US$25m it raised in January this year. The new money will take it into more European cities, and soon into the Far East and Middle East. It has some way to go to scale up to the number one in the market, Just Eat, which raised £1.47bn when it launched via an IPO on the LSE in 2014.
RETAIL THERAPY: The supermarket chains are almost obsessive at measuring performance at the moment, but the statistics continue to worry the larger established retail chains in the UK. Last quarter’s losers were Asda, showing a decline on the comparable period of 2.7%. This allowed J Sainsbury to pull back to the coveted number 2 position in the rankings, with 16.5% of the market, down only 0.3%. Tesco retains the top spot, a long way ahead of anybody else, at 28.5%, but down by 0.6%. The balancing growth, given we continue to spend more on food and household goods, is Waitrose, up 3%, surprise mover the Co-op, up 1%, but most of all the two German owned chains, Aldi and Lidl, up 17% and 11% respectively. However, these results are not adjusted for openings and closings of stores, so reflect the smaller operators continuing expansion into new premises. As Tesco can tell them, this is not necessarily good for the bottom line…
NO COMMENT, NO FT: The shock deal of the week was Pearson Group’s sale of the Financial Times, for £844m. Although it was known that Pearson was looking for a sale of the pink ‘un, the speed of the sale took the market by surprise. As did the identity of the purchaser, Japanese information and information technology group, Nikkei, sponsors of the eponymous index. This is a deal which makes a lot of sense to Nikkei, who are keen to achieve and hold number one position in the world in their business. For Pearson, who have owned the City sheet for many years, it is another step out of publishing and into its global educational business, where it believes its future lies. That move has been slow and painful, and Pearson, once a stock market darling, has fallen on a hard path, with losses for the first six months of this year of £115m, although revenues were up, showing perhaps that they are starting to get to where they want to be. The sale of the FT was not well received by the market with the share price falling 1% on the day. The FT is famous for its editorial independence, following in recent years a political philosophy somewhat to the left, and Nikkei have promised they will maintain the newspaper’s approach in such matters, though some City readers might welcome a change there.
RATE-SETTER: Dr Gertjan Vlieghe has been appointed by George Osborne as a new member of the Bank of England’s Monetary Policy Committee, the all important Bank committee that recommends interest rate changes to the Governor. The MPC is about to enter a new phase in the market where its deliberation will be scrutinised more thoroughly as the Bank signals it is expecting rates to begin to rise and to be more actively managed. Dr Vlieghe is a senior economist at Brevan Howard Asset Management, a hedge fund, took his doctorate at the London School of Economics, served previously at the Bank in the economics division, going from there to Deutsche Bank, and then to Brevan Howard. He replaces David Miles, who has served two terms on the MPC.
TROUBLED WATERS: The 2010 oil spill from a BP rig in the Gulf of Mexico has cost the energy company US$ 54.6bn, according to figures released by BP and following a final settlement with claimants earlier this month. That should draw a final line under the extraordinary costs of the event, but BP is also battling with problems in Libya, where its onshore drilling has been badly hit by the civil war, necessitating a US$600m write down, and trading problems in its joint ventures in Russia, to say nothing of the general slide in oil prices, which contrary to expectations, continues. On the plus side, cost cutting and reductions in capital spending have conserved the cash flow, and BP also saw its trading and refining operations make good returns. All this produced a loss of US$1.3bn, worse than expected, though in current conditions the market seems to expect results to be worse than expected and the share price at 384p barely shifted.
AN APPLE A DAY: The rapid roll-out of Apple’s new instant on-line payment technology continues apace. Latest banks to support the system are HSBC and First Direct. It is understood Lloyds Halifax Group will be next to come on board. This has been a major success for Apple – making it easier than ever to spend money!
KEY MARKET INDICES: (at 29 July 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.56% (steady); 5 year 1.58% (falling).
Europe€: 1 mth -0.8% (steady); 3 mth -0.2% (steady); 5 year 0.33% (rising)
US$: 1 mth 0.21% (steady); 3 mth 0.38% (steady); 5 year 1.70% (falling)
Currency Exchanges:
£/Euro: 1.40, steady
£/$: 1.55, £ steady
Euro/$: 1.1, € slightly weaker
Gold, oz: $1080, significant fall
Oil, Brent Crude barrel: $54.62, falling.
Wheat, tonne: £120.15, steady
London Stock Exchange: FTSE 100: 6,550. FTSE 350: 3,635
Briefly: Interest rates remain surprisingly steady, considering the noises being made by several major central banks (especially the Bank of England) regarding forthcoming rises in rates. In the UK this is affecting mortgage and personal loan pricing, where medium/long term deals are getting more expensive. Stock markets are drifting down over fears of the pace of recovery faltering; gold and oil have both fallen – gold to the lowest price for more than two years.
