Introduction: Anglo American rejects BHP’s takeover approach
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Miner Anglo American has rebuffed a takeover proposal from its larger rival BHP Group, declaring that the £31.1bn offer is “opportunistic” and “significantly” too low.
A day after the mining sector was shaken up by BHP’s approach, Anglo’s board has unanimously rejected the proposal.
The company says:
The Board has considered the Proposal with its advisers and concluded that the Proposal significantly undervalues Anglo American and its future prospects.
It gives several reasons: not only is the offer too low, but Anglo isn’t impressed by the structure of BHP’s all-share proposal, citing uncertainty and complexity, and “significant execution risks”.
Under BHP’s plan, Anglo would demerge its entire shareholdings in Anglo American Platinum Limited and Kumba Iron Ore Limited to its shareholders first, before being acquired, as BHP is mainly interested in its copper mines.
Announcing the rejection of BHP’s approach, Stuart Chambers, chairman of Anglo American, tells the City:
“Anglo American is well positioned to create significant value from its portfolio of high quality assets that are well aligned with the energy transition and other major demand trends.
With copper representing 30% of Anglo American’s total production, and with the benefit of well-sequenced and value-accretive growth options in copper and other structurally attractive products, the Board believes that Anglo American’s shareholders stand to benefit from what we expect to be significant value appreciation as the full impact of those trends materialises.
Chambers adds that Anglo American is “entirely focused” on delivering its strategic priorities.
The company owns mines in countries including Chile, South Africa, Brazil and Australia, but a series of missteps – including disappointing production rates last year – have left it vulnerable to a takeover approach.
But some analysts have already suggested that BHP might have to improve its offer, or that other bidders could also enter the fray with their own proposals….
Yesterday, Anglo’s shares surged 16% and closed slightly higher than BHP’s offer (which is worth £25.08 per share). That implies the City expected the initial proposal to be rebuffed.
Jamie Maddock, energy analyst at Quilter Cheviot, said:
The fact that the shares are trading just above what BHP is offering suggests one of two things – either BHP is going to up its offer or sweeten the deal in some way, or a second offer comes forward from another diversified miner like Glencore.
The deal premium feels relatively low, particularly in the context of recent M&A offers and the heightened complexity hence something above £30 per share could be likely to get it done.
The agenda
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7.45am BST: French consumer confidence report for April
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9.30am BST: UK insolvency statistics for March
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11.30am BST: Bank of Russia interest rate decision
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1.30pm BST: PCE measure of US inflation index for March
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3pm BST: University of Michigan indx of US consumer confidence
Key events
FTSE 100 ends week at new closing high
Newsflash: Britain’s FTSE 100 share index has ended a dramatic week at a new record high.
The Footsie has finished today’s session at a new closing high of 8139 points, up 61 points or 0.75% today. It had earlier hit a fresh intraday high of 8146.79 points.
This wraps up a string of record intraday and closing highs this week; ironically, given concerns that the London stock market was loosing its alure as some companies eye a shift to New York and others face takeover approaches.
For the week, the FTSE 100 gained 3% – a decent score, for an index which has lagged international rivals in recent years.
Indeed, it’s the best week for the FTSE 100 since last September.
Russ Mould, investment director at AJ Bell, says:
“What a fantastic week for the FTSE 100. We’ve had new record highs, yet more takeover action, and everyone is talking about UK stocks in a positive way which hasn’t been seen for ages.
There was no stopping the blue-chip index on Friday as NatWest’s results went down well and we saw gains across most of the market. The breadth of sectors moving higher suggests investor sentiment continues to improve.”
NatWest bank led the risers today, gaining 6% after reporting higher profits than expected for the first quarter of the year.
Industrial equipment rental firm Ashtead was the second-highest rise, up Y after HSBC analysts raised their rating.
They were followed by Anglo American, which gained another 3.8% today after slapping down rival BHP Group’s takeover offer this morning. Traders clearly suspect a higher bid will be needed, or that other suiters could enter the ring….
Relief that Alphabet and Microsoft posted strong results last night have also cheered investors in Europe today.
Kathleen Brooks, research director at XTB, reckons the FTSE 100 may have further to climb, She says:
We think that there is a psychological shift going on in the mind of international investors, and they are starting to warm to UK stocks. There is a dual boom going on in the global economy right now: AI/ tech and commodities.
The UK index may be light on tech, but it has a lot of exposure to miners and energy companies. Copper hit $10,000 a tonne on Friday, and commodities have had a strong run so far this year.
The FTSE 250 index of medium-sized shares jumped 1.1% today, led by Darktrace wihich gained 16% after agreeing a $5.3bn (£4.2bn) sale to US private equity business Thoma Bravo.
The UK’s FTSE 100 index is ending the week on a bit of a tear.
The index of the largest companies listed in London has hit a fresh intraday high of 8146 points this afternoon, and is on track for a new closing high too…..
UK consumer sentiment deteriorated during April, the latest data from the University of Michigan shows.
The Michigan consumer confidnce index has dropped to 77.2 for this month, down from 79.4 in March, and lower than the 77.9 recorded in early April.
The survey also found that Americans’ inflation expectations have ticked up.
Surveys of Consumers director Joanne Hsu explains:
The long-run business outlook inched up to reach its highest reading since June 2021, while views of personal finances softened. Different parts of the population exhibited offsetting changes this month.
Republicans posted notable declines in sentiment this month, whereas Democrats and Independents did not. Sentiment for younger consumers rose, in contrast to middle-aged and older adults whose sentiment changed little or fell.
Back in the London market, Anglo American’s shares are rallying, up 3.5%.
Traders are piling into Anglo again, after it rejected BHP’s takeover offer this morning for significantly undervaluing it.
The rally comes as the Financial Times reports that US activist hedge fund Elliott Management has built a $1bn stake in Anglo in recent months.
Alphabet hits $2trn valuation after blowout results
Google’s parent company Alphabet has hit a $2 trillion valuation, again, after reporting a surge in profits last night and announcing its first dividend.
Alphabet’s shares have jumped by 10% in early trading, lifting its value over the $2tn figure – a landmark it also passed in November 2021.
They’re up 10.5% at $172.50.
Last night, before Alphabet’s results, they had closed at $156.00, valuing the tech giant at $1.95trn.
Russ Mould, investment director at AJ Bell, says:
“Alphabet joining the ranks of tech companies paying dividends is a sign of the times.
“Big tech firms have enjoyed stellar growth over the past decade and while most remain highly innovative, their cash flows have become so strong that there’s oodles of money left over post-reinvestment in the business to reward shareholders. It’s not that they’ve been tight on cash before, it’s just that previously share buybacks were seen as the preferred way to deploy surplus money.
White House’s Brainard: work to bring costs down are ongoing
US National Economic Advisor Lael Brainard insists the Biden administration is trying to bring inflation down, after today’s PCE data showed prices rising faster than the Fed’s 2% target.
In a statement issued by the White House, Brainard says:
While inflation has fallen more than 60% from its peak, today’s report reinforces the importance of our ongoing work to bring costs down. President Biden is fighting to lower the biggest bills families face.
The President has secured legislation to lower costs for health care, prescription drugs, and insulin. He has called on Congress to pass his plan to lower housing costs by building one million new homes. And he is banning hidden junk fees and calling on corporations with record profits to pass their savings on to consumers. That’s a sharp contrast with Congressional Republicans, who are fighting for measures that raise costs for health care, housing, and utility bills while cutting taxes for the wealthiest Americans and biggest corporations.
Today’s rise in the PCE inflation measure shows that hopes of cuts to US interest rates as early as June were too optimistic, says Christopher Breen, head of economic insight at the Centre for Economics and Business Research:
Breen explains:
“US PCE inflation rose to 2.7% in March, meaning it is no lower now than it was in November. It is, therefore, becoming clearer that previous expectations for a rate cut in June have proved too optimistic.
The increasing market-implied probabilities for a rate hike seem like an overreaction, especially given the slowdown in growth seen in Q1, which may indicate that the economy is finally coming off the boil.
Cebr currently expects the first rate cut in July, with a cautious approach to loosening policy further over this year and next.
On a monthly basis, both the PCE price index and the core PCE price index increased by 0.3% during March.
That’s a fairly brisk pace of price rises, which may encourage Federal Reserve policymakers to hold off from lowering interest rates until later this year.
The Fed is due to set rates next Wednesday, and is widely expected to leave borrowing costs unchanged.
US PCE inflation rate rises
Just in: The US Federal Reserve’s preferred inflation rate has risen.
The personal consumption expenditure (PCE) rate rose to 2.7% in March, up from 2.5% in February, and higher than the 2.6% which economists expected.
That may suggest that inflationary pressures are building in the US, after consumer price inflation also rose last month.
However, the Fed will be more relieved to see that core PCE (which strips out food and energy) was unchanged at 2.8% per year.
GMB launches legal action against ‘out of control’ Amazon at Coventry warehouse
Heather Stewart
The GMB is taking legal action against Amazon in the long-running battle for recognition at its Coventry warehouse, accusing the US firm of trying to “induce” staff to leave the union.
An employment tribunal claim is being lodged on behalf of five workers at the large site, known as BHX4.
The GMB cites practices including anti-union messages appearing on message boards, and workers being called into meetings lasting an hour or more, at which they claim managers are critical of unions.
They say QR codes have also been displayed around the building, which, when scanned by a staff member, automatically generate an email to the GMB’s membership department, cancelling their membership.
Amanda Gearing, a GMB senior organiser, said:
“This is a company out of control. Amazon is a multibillion-pound corporation, doing everything in its power to stop minimum wage workers from forming a union.”
More here:
Profits drop at Exxon and Chevron
After enjoying surging profits after the Ukraine invasion, oil companies are now seeing their earnings slide – although they’re still raking billions each quarter.
Exxon Mobile has reported that it made profits of $8.2bn in the first quarter of 2024, down more than $3bn on the $11.43bn it made a year before.
Exxon says:
Earnings decreased as industry refining margins and natural gas prices came down from last year’s highs to trade within the ten-year historical range.
It’s a similar story at Chevron, which today reported earnings of $5.5bn for the first quarter 2024, compared with $6.6bn in January-March 2023. Chevron attributes the drop in earnings to lower margins on refined product sales and lower natural gas realizations.
Mike Wirth, Chevron’s chairman and chief executive officer, says:
“U.S. production was up 35 percent from a year ago, and we continued to meet major project milestones.”
Over in Moscow, the Russia’s central bank has left interest rates on hold at 16% today.
Announcing the decision, the Bank of Russia says that inflationary pressures are gradually easing but remain high.
And it warned that it will take longer than expected to bring inflation down to its 4% target, from 7.7% in March.
The Bank of Russia says:
Due to the remaining elevated domestic demand, which outstrips the capabilities to expand supply, inflation will return to the target somewhat more slowly than the Bank of Russia forecast in February.
The rouble has nudged a one-month high against the US dollar, at 91.79 to the dollar.
Thyssenkrupp sells 20% stake in steel business to Kretinsky
Czech billionaire Daniel Křetínský has bought a fifth of German conglomerate Thyssenkrupp’s steel business, sending its shares surging today.
Křetínský, dubbed the “Czech Sphinx” for his enigmatic, low-profile approach to business, has bought 20% of Thyssenkrupp’s steel operations though his holding company EPCG. The two sides are in talks about the sale of another 30%, to create a 50-50 joint venture.
This is a breakthrough for Thyssenkrupp, which has been trying to divest the unit for several years. Its shares have jumped 8.25% so far today.
The Wall Street Journal reports that while financial terms weren’t disclosed, baader analyst Christian Obst has said Thyssenkrupp could receive between €350m and €400m for the 20% stake, assuming there are no further write-downs in the business.
Earlier this month Křetínský made a £3bn takeover offer for Royal Mail’s parent company, having built up a 27.5% stake.
He was born in communist Czechoslovakia in 1975, the son of a judge and a computer science professor, and built up an empire of European energy companies, snapping up fossil fuel assets.
Copper prices in London hit a two-year high today, Reuters reports, highlighting why BHP is so keen to get its hands on Anglo American’s copper mines.
Copper hit the $10,000 a metric ton mark, after prices in Shanghai hit record levels.
Traders are betting that copper production will struggle to keep up with high demand for the metal, which is vital for the energy transition.
ING commodities analyst Ewa Manthey explaims:
“Speculation over supply shortfalls in copper are pushing prices to new highs. At the same time, investors are turning optimistic about demand from the green energy sector. BHP’s bid for Anglo American highlights the looming supply squeeze.”
NatWest has announced that the government’s stake in the bank has dipped below 28%.
The Treasury’s holding in NatWest has fallen to 27.93%, down from 28.90%, as part of the ongoing trading plan which began in August 2021.
At its peak, the UK owned of around 84% of the bank, when it was known as Royal Bank of Scotland and was rescued in the 2008 banking crisis.
The government is planning to offer its shares in NatWest to the general public this summer.
NatWest Group, CEO Paul Thwaite told reporters this morning:
“Returning NatWest Group to private ownership is a shared ambition and one that we believe is in the best interests of the bank and all our shareholders.”
Cost of living still top concern for UK
Phillip Inman
Regular polling by the Office for National Statistics, tracking public attitudes to the big issues of the day, has been released today.
For some time the cost of living crisis has topped the poll, and the latest figures for the period 10 April to 21 April show no change there.
When asked about the important issues facing the UK today, the most commonly reported concern was surprisingly still the cost of living (87%), followed by the NHS (86%) and the economy (70%).
It’s a blow for the government that steeply falling inflation has had little effect on public attitudes.
Average pay has risen more quickly than prices over recent months, but it would seem that the dramatic price increases of the last three years continue to leave people feeling worse off.
A fall in inflation only limits and does not reverse prices growth.
The ONS said other commonly reported issues were climate change and the environment (61%), housing (55%), crime (55%), immigration (51%) and international conflict (50%).
The proportion of adults reporting international conflict as an important issue facing the UK rose from 34% in October 2023 (20 Sept to 1 Oct) to 50% by November 2023 (15 to 26 Nov).
Since then, the proportion has generally remained similar (50% in the latest period).
— Office for National Statistics (ONS) (@ONS) April 26, 2024
Insolvencies fall in England and Wales
Some happy news: insolvencies among both individuals and companies fell last month.
The number of registered company insolvencies in England and Wales dropped to 1,815 in March, which is 17% lower than in February and than in March 2023.
The Insolvency Service reports that insolvencies fell across the board last month, with 261 compulsory liquidations, 1,437 creditors’ voluntary liquidations (CVLs), 108 administrations and 9 company voluntary arrangements (CVAs) in March.
The fall in insolvencies is surprising, given the pressures that businesses face from high interest rates, weak economic growth and squeezed consumers.
Trevor Wood, partner and insolvency specialist at international law firm Vedder Price, fears it may be a blip, though. He explains:
Today’s figures are extraordinary. I don’t think anyone will have been expecting a fall in insolvencies. All the signs on the ground were that insolvencies would rise as businesses continue to struggle to adjust to the high interest rate environment, which has ratcheted up operating costs and caused real funding issues for struggling companies.
The reality seems to be that businesses and investors have managed to adjust, cutting their cloth successfully to match the economic climate. This is a real bolt from the blue – but a welcome one.
David Hudson, restructuring advisory partner at FRP, says:
“High levels of insolvency were already baked into expectations for this year so any sign of a slowdown in volume is welcome.
That said, with economic growth remaining weak and many pausing investment in anticipation of a General Election, it’s highly likely that more businesses – many still saddled with post-Covid debts – will falter under the weight of elevated input and borrowing costs.
The Insolvency Services has also reported that 8,708 individuals entered insolvency in England & Wales in March 2024, 19% lower than in February 2024 and 9% lower than in March 2023.
Darktrace’s takeover is “the same story” of an undervalued UK asset being taken out, says Neil Wilson of Markets.com:
Something has come loose in the UK market, like a hose pipe that was blocked up suddenly gushing forth.
Another deal announced today for Darktrace and another record high for the FTSE 100. Nick Train suggested a transformative deal could unleash pent-up demand for UK stocks and close the valuation gap – maybe BHP’s move on Anglo American is just such a deal.
The FTSE 100 rose to a new intraday high of 8,139.92 this morning as European indices were broadly higher on some better news from US tech giants Microsoft and Alphabet.
Train, who is one of the City’s best-known stock-pickers, told Financial News this week that investor sentiment about unloved domestic shares could improve if there was a takeover bid for a “substantive UK company”…..
