Hopes of a deal to solve Greece’s financial crisis and a spate of takeover talk have between them helped lift markets from their recent doldrums.
The FTSE 100 is currently up 80.46 points at 6790.9, although off its best levels on talk that Greece had last night submitted the wrong document to its eurozone partners. The original document had apparently gone some way to breaking the deadlock between Greece and its creditors, so a hitch of this nature has revived the doubts about whether a deal will actually be done.
Meanwhile Sky has jumped 44p or 4% to £10.82 following a Sunday Telegraph report that the Murdoch family had turned down offers from Vivendi and Vodafone for their stake in the business. The Murdochs apparently wanted £18 a share for their 39% in the satellite broadcaster, which appears to have been a sticking point.
Analysts at Liberum said a deal might still happen given the issue seemed mainly about price, but despite reports Murdoch’s Fox might decide to make a bid itself, Liberum believed this seemed less likely:
(1) Both [bidders] seem credible...although there are limited synergies trans-borders for pay-tv (Vivendi has Canal+, the main French pay-tv operator) and it makes more strategic sense for Vodafone to own Virgin Media as it gives its own broadband infrastructure.
(2) the fact that the talks reportedly broke down over price rather than the principle of selling the stake suggests the Murdochs are open to a deal.
(3) it suggests a bid by Fox for the rest of Sky is less likely - it would be hard for Fox to argue that Vivendi should pay £18 a share for Sky without offering a similar amount to other shareholders, and we do not see Fox doing this.
UBS said:
Reports in the Telegraph over the weekend state that the Murdoch family/Fox could be considering a new bid to take 100% control of Sky after rebuffing two recent approaches for their 39% stake in the company. We think the Telegraph report highlights the potential strategic value of Sky to a number of different parties and this is not reflected in the current share price. We remain fundamentally positive on Sky and believe investors have underestimated the upside to growth from new initiatives and the benefits of scale from the Sky Europe deal.
Elsewhere Severn Trent has climbed 55p to £21.10 after reported bid interest. Angelos Anastasiou at Whitman Howard said:
The Sunday Times reported... that Borealis Infrastructure was once again considering the potential takeover of Severn Trent. Borealis was a key member of the LongRiver consortium that almost launched a takeover bid for Severn Trent two years ago, and it was said to have had “early stage” discussions with Severn. We believe that such a deal remains feasible, with numerous similar transactions having occurred over the past few years, whereby cash rich entities such as sovereign wealth funds or Canadian pension funds have acquired UK price regulated infrastructure assets, seeking safe, steady returns over many years. The previous highest LongRiver potential offer was at 2200p cum the then final dividend of around 45p.
As Severn has just gone ex of its final dividend, the like-for-like value of the previous potential bid would be 2155p. We estimate that this equates to a 25% premium to regulatory capital value (RCV) premium.
We believe that a more realistic takeover value at the current time (post the successful conclusion of PR14) would be perhaps 2400p, which is a 32% premium or so to RCV by our methodology.
We also see United Utilities as being equally attractive and similar to SVT, while Pennon Group has slightly different attractions because of its rapidly-growing waste business (Viridor), coupled with its water activities (South West Water).
There is takeover activity lower down the market. Spire Healthcare has added 29.6p to 349.6p after South African investment house Remgro offered £432m or 360p a share for almost a third of the business. It would buy the 29.9% stake from buyout group Cinven and sell it on to South African private hospital group Mediclinic International. Investec analyst Cora McCallum said:
We expect the shares to react positively today and believe this could be the first step towards complete takeover at some point in the future. In the meantime, Spire is likely to benefit from Mediclinic’s international expertise with potential for supply chain benefits. We reiterate our hold recommendation with a 375p target price.
Thorntons is up 42.5p to 144p following an agreed £112m bid from Italy’s Ferrero.
Elsewhere the optimism in the market has mean precious metals - normally a haven in times of stress - have slipped back. As a consequence Randgold Resources is down 84p at £44.14 and Fresnillo has fallen 4p at 708.5p.
