23rd Feb 2016 17:09
LONDON (Alliance News) - A late-session decline in oil prices ensured the FTSE 100 closed in the red Tuesday, just as the blue-chip index threatened to turn positive for the day, while London Stock Exchange Group stole the show, as it confirmed "detailed discussions" about a potential merger with Deutsche Boerse.
The merger would create a "leading European-based global markets infrastructure group", worth about GBP21 billion at current prices.
A deal would be structured as an all-share "merger of equals" under a new holding company, according to the two companies. Under the terms of the potential merger, the shareholders of London Stock Exchange would be entitled to receive 0.4421 of a new share in the combined entity in exchange for each LSE share held. Deutsche Boerse shareholders would be entitled to receive one new share in exchange for each Deutsche Boerse share held.
It is expected that Deutsche Boerse shareholders would hold roughly 54.4% of the new holding company, with LSE shareholders holding 45.6%. Under UK listing rules, the deal would constitute a reverse takeover of the LSE. The split the LSE's market capitalisation of GBP9 billion, compared to Deutsche Boerse's EUR15 billion, or about GBP12 billion.
This occasion marks the third time merger talks have been held between the two companies, the previous two being in 2000 and 2004.
London Stock Exchange shares closed up 14% at 2,630.00p, while in Frankfurt, Deutsche Boerse shares rose 3.6% at EUR79.15.
The FTSE 100 closed down 1.3%, or 75.42 points, at 5,962.31. The FTSE 250 closed down 0.4%, or 59.60 points, at 16,229.20, while the AIM All-Share ended up 0.3%, or 1.85 points, at 688.52.
European stock exchanges also ended the day lower. The CAC 40 index in Paris lost 1.4% and the DAX 30 in Frankfurt 1.6%.
On Wall Street at the European equity close, the Dow Jones Industrial Average and the S&P 500 were down 1.1% and the Nasdaq Composite down 1.3%.
A late decline in oil prices saw London stock indices slide after Iran's oil minister denounced the Saudi Arabia-Russia deal for a freeze in oil production.
"Oil prices turned lower after the Iranian oil minister’s colourful description of the output freeze between Russia and Saudi Arabia as 'ridiculous'. Iran and its plans to ramp up output after the lifting of sanctions is proving a thorn in the side of other producing counties which appear to be reaching consensus that production should stay at current levels," said Jasper Lawler, market analyst at CMC Markets.
"Tensions are clearly rising in the cartel as the Saudi oil minister reposted that 'Not all the countries will freeze. The ones that count will.'," Lawler added.
Brent oil sharply fell in the afternoon to USD33.22 a barrel at the close on London equity trade. This was lower than the USD34.18 seen at the close on Monday. West Texas Intermediate traded at USD31.73 a barrel at the close Tuesday, versus USD33.60 on Monday.
Gold was back in favour, with the metal quoted at USD1,224.90 an ounce at the close Tuesday, higher than the USD1,209.90 seen at the close Monday.
The pound remain subdued against the dollar as Bank of England Governor Mark Carney told UK lawmakers that uncertainty over the outcome of UK referendum to decide whether to remain in the EU is weighing on the exchange rate.
Carney said that the bank is ready to loosen monetary policy, including cutting interest rates towards zero and increasing its bond buying programme to stimulate the UK economy. However, Carney dismissed the idea of negative interest rates, such as implemented by the European Central Bank and the Bank of Japan, saying the Monetary Policy Committee has "absolutely no intention" of taking such a step.
"We could cut interest rates towards zero. We could engage in additional asset purchases, including a variety of assets. We could also provide a perspective or we could adjust the horizon over which officials wish to return inflation to the 2% target," Carney told the Treasury committee.
At the London close, the pound traded the dollar at USD1.4082 compared to USD1.4142 at the close Monday. The euro was quoted at USD1.1019 on Tuesday against USD1.1024 on Monday.
In other UK corporate news, Standard Chartered said it swung to its first annual loss since 1989, with the bank's operating income coming under pressure in 2015 amid a costly restructuring and deteriorating financial markets.
Standard Chartered, which makes most of its money in Asia and emerging markets, said it expects a "subdued" financial performance in 2016.
The bank's USD1.52 billion pretax loss in 2015 came as a surprise to the market, and measured up against a pretax profit of USD4.24 billion in 2014. Its net loss of USD2.36 billion contrasted with the prior year's USD2.51 billion net profit.
"Chinese equity markets have been increasingly volatile, impacting sentiment around the world, and commodity markets have plumbed new lows," Chief Executive Bill Winters said.
Standard Chartered closed down 6.7% at 406.95 pence, having plunged by as much as 12% to 383.85p shortly after the results were published just after the London market open.
BHP Billiton ended down 6.1% as it conceded the current downturn in the commodities market will go on for longer than expected, forcing the Anglo-Australian miner to make a more severe cut to its dividend than expected and step-up its restructuring efforts.
The market was expecting the multi-commodity giant to lop a large chunk off its interim dividend due to the anticipated falls in earnings, but the more than 70% cut was still a lot more than what the market was anticipating, as BHP ultimately posted an enormous pretax loss in the first half.
The miner booked a hefty USD7.45 billion pretax loss in the first half of its financial year to the end of December, swinging from a USD7.69 billion profit a year earlier.
The loss was the result of declining revenue and large impairments related to its petroleum assets and the fatal tailings-dam burst at its Samarco joint venture in Brazil in November. Exceptional items totalled USD8.37 billion in the first half, most of which was expected, with net exceptional items of USD6.13 billion.
Other mining shares also lost ground, with Anglo American down 2.6%, Antofagasta down 3.7% and Rio Tinto down 1.5%.
Housebuilder Persimmon closed up 3.3% after it posted strong top-line results, confirming the buoyancy of the government-supported property market in the UK, which prompted the company to hike its capital return plans 11 times over.
Persimmon said it will be accelerating its capital returns programme and offering shareholders 110.0 pence per share, a huge rise on the 10.0p per share it had been planning to return previously.
It said it was raising the payout due to the company's strong performance, including pretax profit of GBP637.8 million, up from GBP475.0 million a year earlier, and total revenue for the year of GBP2.9 billion, up from GBP2.6 billion.
The pretax profit figure came in significantly ahead of both the GBP605.9 million consensus estimate compiled by Morningstar and the GBP602.0 million predicted by Shore Capital.
Meggitt was the best performer in the FTSE 250, up 11%. The aerospace and defence components manufacturer expressed confidence in its outlook for 2016 following a tough 2015, marred by a profit warning and demotion from the FTSE 100 index at the end of the year.
In a pre-close update in December, the group confirmed its expectation that negative trends in its markets would continue into 2016, hit by continued weakness in its energy business and sluggishness in aerospace and military sectors.
Though Meggitt still expects the slowdown in oil and gas markets to continue to hit growth in its energy business, on Tuesday it said the outlook for its civil aerospace business is encouraging, with organic growth to be in the low-to-mid-single-digit range for 2016 but with acquisitions to add to revenue growth in the segment.
In addition, Meggitt said military markets are entering a "more benign phase" following years of squeezed defence budgets globally, though the company maintained a relatively cautious stance for 2016 as it will take time for orders to flow through.
Drax Group closed as the worst mid-cap performer, down 4.6%. The power generation company said its strong operations partly mitigated a severe deterioration in its markets and difficult regulatory challenges in 2015, but it still reported large falls in profit and earnings and slashed its dividend.
Drax said its pretax profit in 2015 plummeted to GBP59.0 million from GBP165.9 million in 2014 despite revenue almost rising 10% to GBP3.06 billion from GBP2.80 billion.
Although revenue rose, Drax's gross margin was squeezed as the gross profit fell to GBP408.8 million from GBP449.8 million, leading to earnings before interest, tax, depreciation and amortisation of only GBP169.0 million compared to GBP229.4 million last year.
In the economic calendar for Wednesday, the British Bankers' Association publishes UK mortgage approvals at 0930 GMT, before the Confederation of British Industry releases its distributive trades survey at 1100 GMT. US mortgage applications are at 1200 GMT, flash readings of US Markit services and composite purchasing managers' indexes are both at 1445 GMT, new home sales are at 1500 GMT, and the US Energy Information Administration's crude oil stocks are at 1530 GMT.
In the UK corporate calendar, the only scheduled release from a blue-chip company is full-year results for housebuilder Barratt Developments.
The focus therefore is on mid-cap companies, with full-year results from oil-services company Petrofac, wealth manager Rathbone Brothers, hedge fund investment management company Man Group, home credit lender International Personal Finance, engineering services company Weir Group, property developer Capital & Counties Properties, and construction services group Interserve. FTSE 250-listed recruiter Hays reports half-year results.
By Neil Thakrar; [email protected]; @NeilThakrar1
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