FTSE 100 Live: Unilever latest on Glaxo swoop, Credit Suisse boss quits, China GDP

·13 min read
 (ESI)
(ESI)

Shares in Marmite maker Unilever are sharply lower after it made an audacious swoop for GlaxoSmithKline's consumer healthcare arm.

The food giant told investors that the Glaxo unit is a “strong strategic fit” as part of it pursuit of sales categories with higher rates of sustainable growth.

The developments came as the City also digested the resignation of former Lloyds boss António Horta-Osório as chairman of Credit Suisse.

FTSE 100 Live Monday

  • Unilever shares fall after Glaxo move

  • António Horta-Osório resigns as Credit Suisse chairman

  • FTSE 100 index rises on China support

Analysts pass judgment on Unilever’s GSK tilt

15:15 , Oscar Williams-Grut

City scribblers have been having their say on Unilever’s GSK bid. The verdict is pretty withering. Concerns centre around the large amount of debt Unilever would have to take on to fund the deal and the company’s poor track record in deriving value from acquisitions.

Barclays calls the potential deal a “bridge too far” as a deal of its size would be “very complex to execute in normal times, let alone in the middle of a global pandemic.” The high gearing runs the risk that “debt pay down becomes a bigger focus than stepping up its growth ambitions.”

Morgan Stanley sees some merits to a transformational deal but says there are big risks. It somewhat charitably says Unilever’s track record of acquisitions has been “mixed”: “Since 2015, the company has deployed >€16bn M&A capital but its top-line growth is yet to structurally improve. “

Credit Suisse also mentions Unilever’s “inconsistent M&A track record” and JPMorgan says bluntly: “Unilever’s bold move to acquire GSK’s Consumer Health division could likely to herald years of structural portfolio transformation and with it substantial value destruction.”

Chris Beckett, head of equity research at Quilter Cheviot, says: “Initial investor reaction demonstrates Unilever‘s lack of management credibility.

“Unilever‘s management have not demonstrated the ability to consistently grow both sales and margins and as such are now turning to large scale inorganic growth to do so. However, there is not much faith that they will be able to do this with a larger, more diverse range of products.”

UBS is probably the most charitable on the street. Its analysts write: “We have repeatedly argued that Unilever’s operational difficulties are primarily reflective of the group’s challenging product category exposure, rather than the result of some hypothetical subpar execution or strategic mistakes. We therefore believe that a transformational deal remains Unilever’s fastest way out of its current operational predicament.”

But even they have concerns: “The magnitude of Unilever’s rejected bid (c. half of Unilever’s current market cap), the uncertainty around Unilever’s desire to raise its initial offer over and the timing of the offer (deal approached from a position of weakness following a year of share price underperformance vs. the EU Food & HPC sector), will likely add to investors’ concerns and to the opacity surrounding the group’s medium-term prospects.”

Shares in Unilever are currently down 6.6%, off 262p at 3675p.

Why the City is still top dog: the banking Brexodus that never happened

14:12 , Oscar Williams-Grut

What happened to all those bankers that were going to quit the City and move to the EU post Brexit?

A pertinent question. What happened to them mostly is this: they stayed exactly where they are. There was no, ahem, Brexodus.

But weren’t there predictions of City apocalypse? Our famed Square Mile deserted? Our banking industry finished?

read more here

Amazon UK abandons plans for Visa credit card ban

12:35 , Oscar Williams-Grut

Amazon has abandoned plans to ban Visa credit cards on its UK website just days before the policy was due to take effect.

A spokesperson for Amazon said on Monday: “The expected change regarding the use of Visa credit cards on Amazon.co.uk will no longer take place on January 19.

“We are working closely with Visa on a potential solution that will enable customers to continue using their Visa credit cards on Amazon.co.uk.”

A Visa spokesperson said: “Amazon customers can continue to use Visa cards on Amazon.co.uk after January 19 while we work closely together to reach an agreement.”

Details of the ongoing negotiations or what they might entail were not given.

Read more.

12:17 , Oscar Williams-Grut

A proposed fire-sale of under-performing food assets failed to stem the blood-letting at Unilever today as the City issued a damning verdict over its failed £50 billion tilt at GlaxoSmithKline.

Shares in the consumer goods titan plunged by more than 7%, erasing some £7 billion from its £100 billion market cap and sending it to the foot of the blue-chip index.

GSK, meanwhile, took wings from the enhanced implied valuation of its consumer healthcare arm whose power brands include Advil, Aquafresh and Sensodyne, and which it intends to spin off in mid-2022.

Shares in GSK shot up by as much as 5.9% in anticipation that any eventual sale or flotation of the division could realise at least £60 billion.

Consumer goods giants Reckitt Benckiser and Nestlé and various private equity firms are also said to be kicking the tyres with any offer above that considered “difficult” for GSK’s board to resist.

The courtship between the FTSE 100’s third and fifth largest firms has electrified the City, with Unilever now said to be in talks with major lenders to bulk up its war-chest in readiness for a fourth takeover approach.

Read our report on the latest in the Unilever-GSK saga.

PwC Babcock probe extended

11:44 , Oscar Williams-Grut

A probe into PwC’s work with Babcock has been extended after the defence giant was forced to take major write-downs last year.

The Financial Reporting Council (FRC) today began an investigation into PwC audits for Babcock audits in 2019 and 2020. The FRC is already investigating the “Big Four” accountant’s work in 2018 and 2017 after spot checks found the quality was below par.

The watchdog has extended its investigation in light of large write-downs Babcock took last year. The company, which is a key Ministry of Defence contractor, took an impairment of £2 billion following an internal review of contract profitability. Babcock sunk to a £1.6 billion loss as a result and saw its shares drop sharply.

The FRC investigation is being carried out by its enforcement division, meaning PwC and the lead partner who led the Babcock work could face fines if investigators rule against them.

Read the full story.

City Comment: The Swiss knife always loomed for former Lloyds Bank boss

10:59 , Simon English

Antonio Horta-Osorio just had to go. A breach of Covid rules, including attending Wimbledon, is a bad look for a chairman, especially one trying to turn around a scandal torn bank.

He goes, as they say, with immediate effect. Politicians might take note of this, but they won’t.

This issue aside, it is tempting to think that he never had a chance in the first place.

The Swiss banking world is incredibly insular. And to the Swiss, especially the Swiss press, Credit Suisse is more than just a bank.

read more here

FTSE 100 continues to show momentum

10:39 , Graeme Evans

Support for China's economy and the return of blockbuster M&A activity provided contrasting reasons for the latest two-year high in the FTSE 100 index today.

The surprise move by the People's Bank of China to lower a key interest rate for the first time since April 2020 cushioned the blow of figures showing weaker quarterly growth.

Uncertainty caused by Covid-19, supply chain disruption and the problems around debt-laden Evergrande have clouded China's outlook, although today's Q4 GDP figure of 4% was better than many in Beijing had been expecting.

Commodity prices were given support by the developments in China, with Brent crude remaining above $86 a barrel. That's near to October's three-year high of $86.72, when world leaders discussed the release of oil from strategic reserves.

Prices have been given impetus in recent days by signs that Omicron is having a limited impact on the global economy, sending Brent up by around 10% so far this year and boosting shares in BP and Royal Dutch Shell as a result.

BP rose another 3.2p to 391.89p today, contributing to the FTSE 100 index reaching its highest level since the end of January 2020 amid a gain of 50.62 points to 7593.15.

Unilever's £50 billion approach for GlaxoSmithKline's consumer healthcare arm also fuelled confidence in prospects for more deal-making activity in 2022. One of the biggest beneficiaries was Dettol, Nurofen and Air Wick firm Reckitt Benckiser after its shares lifted 4% or 209p to 6404p.

A largely positive session included gains of 2% or more for widely-held BT Group, B&Q owner Kingfisher and Burberry. Chile-based miner Antofagasta added 34p at 1413p as analysts at UBS removed their “sell” recommendation.

In the FTSE 250 index, selling pressure returned to send Darktrace shares down by 4% or 19.8p to 424.8p. The performance reversed some of the gains seen last week after a better-than-expected update from the AI-focused cyber security firm.

The mood in the second tier was otherwise positive, with the index trading 146.04 points higher at 22,889.69. Big risers included Cineworld after rallying 7% or 2.7p to 43.1p and Auction Technology Group with a 4% improvement.

Goldman buys London green office

10:17 , Oscar Williams-Grut

Goldman Sachs is backing a new half a billion pound “Paris-proof” London development as investors bet that demand for eco-friendly offices will jump in the post-pandemic era.

The US investment bank’s asset management business has bought a 75% stake in a new “green office” development near London Bridge. The project is being spearheaded by environmentally friendly developer EDGE and is understood to cost around £500 million.

The new building is due to open in 2025 and will be on St Thomas Street. It will be built at a site currently occupied by a Home Office building, which is due to be demolished in July.

Read the full story.

Will Unilever sweeten the deal?

09:17 , Graeme Evans

Glaxo’s forecast for organic sales growth of between 4% and 6% means it thinks its consumer healthcare business is worth a lot more than the £50 billion Unilever is currently prepared to offer.

However, Hargreaves Lansdown equity analyst Laura Hoy believes Unilever's increased focus on growth in the health, beauty and hygiene segments makes another approach highly possible.

She added: “The group says it will pounce on acquisition opportunities within the space, and they don’t get much more appealing than this one.

“With Unilever’s tea business expected to bring in upwards of £4 billion when it’s sold later this year, management might have the firepower to sweeten the deal.

“Glaxo’s healthcare business comes with a hefty debt pile, though, which could keep a lid on the price Unilever — or any other suitors — are willing to pay.”

Brent crude at $86 a barrel

09:08 , Graeme Evans

Oil prices continue to rise after Brent crude futures today topped $86 a barrel, close to the three-year high of $86.72 seen in October.

Brent is up nearly 25% since the start of December and by around 10% so far in 2022.

Victoria Scholar, head of investment at Interactive Investor, said: “A robust outlook for global demand as the impact of Omicron appears to be less than initially feared, combined with limited supply from OPEC+, is underpinning the uptrend.”

She said analysts were pricing in further gains, with JPMorgan looking to $150 a barrel in 2023.

Unilever shares slide after Glaxo approach

08:29 , Simon Freeman

Unilever shares are down sharply following its £50 billion approach to buy GlaxoSmithKline's consumer healthcare unit.

The Marmite and Dove soap business is 5% or 188.5p lower at 3748p amid fears that it may end up to having to pay as much as £60 billion, a price tag that would also increase the shares element of any proposal from the current £8.3 billion.

GlaxoSmithKline shares were 5% or 86.4p higher at 1727.4p as it used the Unilever approach as an opportunity to highlight expectations for the consumer healthcare arm to grow in the range of 4-6% over the medium term.

It said the Unilever price “fundamentally undervalued” the business ahead of plans for its demerger later this year.

Full story here

Former Lloyds boss leaves Credit Suisse

08:12 , Graeme Evans

The resgination of former Lloyds boss António Horta-Osório as chairman of Credit Suisse follows his reported breaches of Swiss and UK quarantine rules.

He said: “I regret that a number of my personal actions have led to difficulties for the bank and compromised my ability to represent the bank internally and externally.

“I therefore believe that my resignation is in the interest of the bank and its stakeholders at this crucial time.”

He is being replaced as chairman by current board member Axel Lehmann.

Read more here

Taylor Wimpey plots buyback

08:07 , Oscar Williams-Grut

Taylor Wimpey has told investors to expect a share buyback in the coming months after what CEO Pete Redfern called an “excellent” 2021.

In a trading update, the house builder said it “remains committed” to returning excess cash to shareholders and will announce a payout alongside full-year results in March.

“It is the Board’s current intention to return this cash by way of a share buyback, however the final method of return will be determined at the time of the full year results in light of prevailing circumstances,” the company said.

Taylor Wimpey had £837 million on its balance sheet at year end, up from £719 million a year earlier.

Payout plans come after a strong year for sales and completions. Home completions jumped by 47% to 14,087 as pandemic disruption eased. The company sold on average 0.91 homes per outlet per week, up from 0.76 in 2020, and the average selling price rose by 3% to £332,000. The company’s order book stood at £2.55 billion at the end of the year.

Taylor Wimpey said rising house prices “fully offset build cost inflation amidst wider industry pressure on the cost and availability of certain materials.”

Read the full story.

China rates cut boosts Asia markets

07:49 , Graeme Evans

The health of China's economy provides a major focus for investors today after the release of GDP and retail sales figures was accompanied by a cut in borrowing costs.

The first reduction in the rate on medium-term loans since April 2020 came amid a slowdown in the fourth quarter rate of GDP to 4%.

The result was ahead of the 3.6% forecast but below the previous quarter's 4.9% after a period of uncertainty caused by Covid-19, supply chain disruption and the problems around debt-laden Evergrande and the wider property sector. Regulatory crackdowns by Chinese authorities have added to the pressure.

The Q4 performance meant China's economy expanded by 8.1% in 2021, the fastest growth in a decade following a Covid-hit figure of just 2.2% in 2020.

China also posted retail sales growth of 1.7% in December, the lowest figure since August 2020 and down on the 3.9% seen in the previous month and below expectations for 3.7%.

Asia markets were in positive territory after the cut in borrowing costs, while oil prices rallied with Brent crude over $86 a barrel.

CMC Markets expects the FTSE 100 index to open 20 points higher at 7563.

Wall Street markets are closed for Martin Luther King Day, with the focus over the rest of the week set to be driven by US earnings and the latest UK inflation figure.

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