17 August 2017
Week in Brief: BUSINESS AND THE CITY
THEY’RE OFF: It may be a quiet time of year for business, but this season also seems to be a bad one for closing already announced deals. JOHN MENZIES said last March that it was in detailed discussions regarding the sale of its logistics and distribution business to DX, which is also a distributer and is listed on AIM. John Menzies’ distribution business is focused on time sensitive print deliveries, historically especially newspapers, though that end of the business has considerably declined. In its attempts to diversify into parcels and services to retail customers it has found the going tough and wants to concentrate on what it now sees as its core business, and one with long term growth potential, aircraft refuelling and servicing. But it seems DX is also struggling and is now reorganising after a year in which performance was flat. The Menzies deal would have meant Menzies ended up owning 65% of DX, a proposal not viewed with joy by DX’s largest shareholder Gatemore Capital Management, who own 21% currently. The reorganisation caused Menzies to look at the deal again, and decided that it did not want to do it after all. It had already adjusted the terms in June, but now says it is off altogether; so back to the warehouse for both parties.
Meanwhile, J SAINSBURY also seem to be walking away from a transaction that looked as though it was a done deal. This is the acquisition of Nisa Retail, which is essentially a cooperative chain of local grocers – 1,400 of them – who own shares in Nisa and trade under their banner, also using their central buying strength. Nisa’s trading has been struggling a bit but the sale to Sainsbury was not popular with many members, who however had limited powers to block it due to the complex control structure of Nisa. But now Sainsbury have said that they are unlikely to proceed on the original timetable (Sainsbury’s exclusivity expired last week) because of the impending review of competition issues in the retail food business – initially triggered by Tesco’s proposed acquisition of Booker Group. That means that Coop Group, who were keen to see if they could buy Nisa but could not then meet the Sainsbury price, are back talking, at a price said to be about £140m, slightly more than the Sainsbury offer. The Nisa members are thought to greatly prefer a Coop purchase, which they see as much closer to their own ethos.
Yet another party walking away, albeit rather too late, this time from Air Berlin. ETIHAD, the major Gulf airline which also had a strategy of investing in other airlines to bring business to its hub in Abu Dhabi has been the main backer and largest single shareholder (29%) in the discount airline. Air Berlin rose rapidly to build a cross European network of shorthaul destinations and became popular with customers for its simple but friendly (and cheap) approach. But it has been caught by the intense competition in the budget end of the shorthaul business – and also suffered from delays and cancellations due to airtraffic control issues in Europe and capacity crunches in some European airports – that meant passenger numbers dropped nearly a quarter last year, and revenue more so. Etihad has continued to support the airline, putting €250m into the business this past spring. But last week it said that it had been asked for more cash and had decided it could not justify that, so Air Berlin is now in administration. For Etihad this is double bad news – it was a major investor in Air Italia which also went into administration earlier this year. Although the German government have promised temporary funding, that seems to be to allow a controlled wind-down of the Air Berlin business, and possible sale of some parts.
NOT ALL FALLING OUT OF BED: One deal that does seem to be slowly proceeding is Wood Group’s takeover of Amec. That transaction has been bedevilled by competition concerns. The Competition and Markets Authority (“CMA”), which had to be consulted because of the significant exposures of both parties to North Sea oil and gas servicing, said that they would raise no objection if Amec disposed of its North Sea related business. That is under way; Amec says there is a good list of buyers available and it expects to agree a sale by the end of September. That may not get the CMA totally on side. It says it will hold a public consultation before making a final decision in the autumn and that could still lead to a full enquiry into the deal, but both Wood and Amec think that the service unit sale will get them over the approval line to close the deal by Christmas. Amec needs to make that sort of timetable – it is short of capital and was about to hold a £500m rights issue before Wood made its offer. It published its first half results last week, and although it has returned to a profit of £77m (loss of £446m in the comparable quarter last year) overall revenues fell by nearly 20% – most of that being due to reduced business in the North Sea unit. Debt was down by £111m and the group said cost cutting was going according to plan
SITTING UNCOMFORTABLY: First half sales were also down at DFS, the major UK furniture retailer, most of whose outlets are on out of town retail parks. The company blamed the fall of 4% on increasing competition combined with consumer’s reluctance to buy large priced items at a time of economic and political uncertainty. This was the second profit warning given by the group and the share price responded accordingly, falling 6%.
POWER SURGE SOUTH WEST: We flagged here a few months ago the intentions of a new business called Cornish Lithium, the bright idea of investment banker Jeremy Wrathall, to mine for lithium in Cornwall. Mr Wrathall had procured licenses and support to drill on various sites on the south side of Cornwall, mainly old tin mines but also on the Tregothnan Estate, the extensive lands of the Boscawen family. It is known that lithium, a vital but hard to find component of long life batteries, is present in Cornwall, which has the ideal conditions of granite and brine, but the question is whether it is in quantities large enough to make mining economic. Mr Wrathall will soon know the answer to that question. He has raised from three investors – all private individuals with backgrounds in metals and mining -the initial £1m required to drill trial mines and analyse whatever he may find. Future episodes of “Poldark” may take a very unexpected turn.
KEY MARKET INDICES:
(as at 15th August 2017; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, (unchanged): 3 month 0.28% (unchanged); 5 yr 0.72% (fall).
Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.10% (fall)
US$: 1 mth 1.23% (steady); 3 mth 1.32% (rise); 5 year 1.84% (slight fall)
Currency Exchanges:
£/Euro: 1.10, £ sready
£/$: 1.29, £ weakening
Euro/$: 1.17 € weakening
Commodities:
Gold, oz: $1,270, slight fall
Aluminium, tonne: $2,029 rise
Copper, tonne: $6,350, slight fall
Iron Ore, tonne: $72.74, rise
Oil, Brent Crude barrel: $50.17 fall
Wheat, tonne: £147, steady
London Stock Exchange: FTSE 100: 7,382 (fall). FTSE Allshare: 4,047 (fall)
Briefly:
Oil seems to be responding downwards to persistent chatter in the market that supplies are rising. Rumours also on aluminium which continues to edge up – those are about China restricting supply. And copper seems settled in a new range above $6,000. The interest rate and currency markets remain quiet.
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