Times Online: Shell… a potential target for shareholder activism

EXTRACT: Miners and oil companies led the FTSE 100 index to only its second gain in eight sessions. Shell took on more than 2 per cent after Morgan Stanley said the group was hugely undervalued and a potential target for shareholder activism, while BHP Billiton and Rio Tinto climbed as UBS raised forecasts across the sector to reflect higher coal prices.

Headline: Kill the competition

June 29, 2007

Today’s round-up of national and international business news from The Times
Friday, June 29, 0730 BST

Catching cold

Warnings over debt applied to complex financial instruments are coming thick and fast. But it is much too late for institutions such as Cambridge Place, the London fund manager, which was forced to close its $908 million (£450 million) listed fund on Thursday.

The Times reports that jitters about high-risk mortgage-backed securities have also moved to the blue-chip market. Carlyle Group, the US private equity firm, says that it will scale down the float of a fund invested in AAA-rated home loans because of investor nervousness about the credit markets.

Cambridge Place, which was established in 2002 by former Goldman Sachs bankers, said that it would sell the assets of Caliber Global Investment, a London-listed fund, after suffering a net loss of $8.8 million in the first quarter of this year. This follows similar spurts of red ink at two Bear Stearns hedge funds and at Queen’s Walk Investment, another London hedge fund.

The Times comments that this feels like an epic with more chapters to come. According to one estimate, losses on sub-prime mortgages could be as high as $75 billion – a case of cold developing into financial pneumonia.

Big call

Who will win the European slice of the piping hot Apple iPhone pie? The Times says that Vodafone is the front-runner to win the rights after one of the most fiercely contested battles since the £22.5 billion auction of 3G rights.

As the iPhone goes on sale in the United States on Friday, intense negotiations between the California-based group and Britain’s main mobile operators near a climax. Vodafone faces stiff competition for the exclusive rights to distribute the handset in Europe from rivals such as Orange and the German-owned T-Mobile.

The Times says that Vodafone’s sheer size and spending power should give it the edge. It doesn’t hurt that Arun Sarin, the chief executive of Vodafone, is known to have a good relationship with Steve Jobs, Apple’s chief executive. The two have held private talks about a deal.

But observers are staying on the line – the relatively greater upside for smaller UK players such as T-Mobile means that they will not retire from the negotiating table without a furious fight.

Fund’s withdrawal

So who told the bad joke at the Bretton Woods club? The managing director of the International Monetary Fund (IMF), Rodrigo de Rato, is to step down in October – almost two years before the end of his term in office – “for personal reasons”. His surprise decision comes just six weeks after Paul Wolfowitz was forced to hand over the reins at the World Bank.

The successor to the Spanish former finance minister, who was appointed in 2004, customarily comes from Europe. The US appoints the head of the World Bank, which was established alongside the IMF under the Bretton Woods Agreements of the 1940s.

The BBC reports that, under Mr de Rato, the IMF has taken an increasing role in what it calls “surveillance” of currencies, and has been a strong advocate of China revaluing its currency. But it has struggled to find a role in managing global financial problems, with Asian countries building up large currency reserves following the crisis – which, coincidentally, began almost ten years ago to the day.

The Daily Telegraph tips Mervyn King, the Governor of the Bank of England, as a contender for Mr de Rato’s job. Mr King’s own term expires next summer.

Bet you $2 …

The Governor still has a king-size portion on his plate at home. The Daily Telegraph reports that the pound shot back above $2 as it becomes increasingly clear from the economic runes that interest rates are set to rise next week.

Sterling pushed comfortably through the barrier following news that the housing market is still defying the doomsters and growing firmly.

It remained aloft throughout the day, after several members of the Monetary Policy Committee (MPC) indicated that they are in favour of higher borrowing costs. At the end of the day, the currency, which tends to be pushed higher by suspicions of rising interest rates, was half a cent higher at $2.0026.

A poll by Reuters found that 56 out of 70 City economists expect the MPC to raise rates by a quarter of a percentage point next Thursday. That would mean rates will have risen five times within 12 months.

Terror blacklist

Some of the world’s biggest companies have been outraged by a website link launched by US regulators aimed at exposing which of them could be “indirectly subsidising a terrorist state”.

The Securities and Exchange Commission (SEC) site links the companies to five countries – Cuba, Iran, North Korea, Sudan and Syria – designated by the State Department as “sponsors of terrorism”.

By clicking on each country, investors see a list of companies that mention that country in their latest annual reports. The companies are mostly non-US and include Unilever, Cadbury, HSBC, Nokia, Siemens and Total.

Christopher Cox, the chairman of the SEC, described the site as falling under the commission’s investor-protection mission. “No investor should ever have to wonder whether his or her investments or retirement savings are indirectly subsidising a terrorist haven or genocidal state.”

But the companies argue that the list does not make clear the extent of a company’s business in such states or whether they still have ties.

Purple rain on retailers

“The Artist Formerly Known as Prince should know that with behaviour like this he will soon be the Artist Formerly Available in Record Stores.” That warning from the Entertainment Retailers Association (ERA) after it emerged that the singer is launching his new Planet Earth album as a free giveaway with a national Sunday newspaper.

The ten-track CD will be available free with an “imminent” edition of the Mail on Sunday, which would not reveal how much its deal cost. Planet Earth will then go on sale on July 24.

The Guardian says that one music store executive described the plan as “madness” while others say that it is a huge insult to an industry battling fierce competition from supermarkets and online stores. The ERA says that the giveaway “beggars belief”.

Prince has signed a global deal for the promotion and distribution of Planet Earth in partnership with Columbia Records, a division of Sony BMG. But the UK arm of Sony BMG has withdrawn from the deal in an effort to appease music stores.

Out of the Blues

After weeks of speculation, the identity of the mystery bidder for Birmingham City FC has finally been revealed.

The South China Morning Post reports that the team’s owners have offered a company controlled by Carson Yeung Ka-sing, a Hong Kong businessman, the chance to buy up to 29.9 per cent of the club for HK$234 million (£14.9 million).

So who is Carson Yeung? Internet chat room users at one Birmingham City fan website recently tipped him as the front man for a bid by Lee Shau-kee, the 22nd richest man. But the would-be proprietor of the Premier League club maintains a far lower profile.

Mr Yeung, who is also said to have been interested in bidding for two Sheffield Wednesday and Reading, is believed to operate a lucrative securities trading business. But can he kick goals in the football arena?

Blues supporters look away now … the Post says his track record is doubtful.

MARKETS

FTSE 100 (Thursday close): up 43.70, or 0.7%, at 6,571.30

Dow (close): down 5.45 points at 13,422.28

S&P 500 (close): down 0.63 of a point at 1,505.71

Nasdaq (close): up 3.02 points at 2,608.37

Nikkei (latest): up 156.29, or 0.9%, at 18,088.56

Hang Seng (latest): up 232.66, or 1.1%, at 21,938.22

Sterling (latest): $2.0019

Oil (latest): West Texas crude flat at $69.57

Gold (latest): down 20 cents at $650.20

NEW YORK

Wall Street was little changed in choppy trade on Thursday after the US Federal Reserve repeated concerns that inflation might fail to moderate.

The Fed held the benchmark US interest rate steady at 5.25 per cent for an eighth successive month, but dropped a description of core inflation as “elevated”.

The decision came as a closely watched gauge of inflation unexpectedly accelerated, despite separate data showing that the economy grew at the weakest in more than four years during the first three months of the year.

The Dow Jones industrial average closed up 5.45 points, the broad-based S&P 500 index fell 0.63 of a point and the technology-laden Nasdaq edged up 3.02 points.

ASIA

Most markets advanced for a second day after Japan’s household spending rose for the fifth month in succession and its jobless rate remained at a nine-year low, signaling strengthening demand in the region’s biggest economy.

More on Asian markets here

Toyota gained as the yen weakened, boosting the value of overseas sales. Toshiba, the No 2 maker of flash memory chips, rose after Credit Suisse raised its rating. Taiwan Semiconductor Manufacturing, the leading maker of customised computer chips, increased after Lehman Brothers advised investors to buy shares of Intel, the world’s largest chipmaker.

The Morgan Stanley Capital International Asia-Pacific Index added 0.6 per cent, trimming its gains for June to 1.7 per cent. But this marks its ninth consecutive monthly gain, the longest rising stretch since the benchmark was introduced in 1987.

Japan’s Nikkei was up 0.9 per cent, while Hong Kong’s Hang Seng has risen 1.1 per cent in intraday trading.

Paul Larter

[email protected]

LONDON

Miners and oil companies led the FTSE 100 index to only its second gain in eight sessions. Shell took on more than 2 per cent after Morgan Stanley said the group was hugely undervalued and a potential target for shareholder activism, while BHP Billiton and Rio Tinto climbed as UBS raised forecasts across the sector to reflect higher coal prices.

Vodafone was once again a speculative feature as about twice the average volume was traded, stoking theories of stake building. Smiths Group was up on talk that it could be the target for an American corporate raider, while Cadbury Schweppes gained as Nelson Peltz, the agitator on its register, raised his stake to nearly 3.5 per cent.

BROKERS

Cazenove raised Northern Rock to “outperform” from “in-line” in the wake of its profit warning on Wednesday. While there remains uncertainty both about near-term earnings and its revised strategy, the valuation discounting further deterioration and is therefore overly pessimistic, it said.

Cazenove calculated that the lender trades in line with peer Bradford & Bingley, which it reckoned assumes no contribution from the new strategy and fails to recognise that earnings will increase as higher-risk lending is reduced. “When interest rate expectations moderate, sentiment towards UK mortgage banks will improve and Northern Rock will enjoy lower wholesale funding costs,” it continued.

The analyst also highlighted that the shares yield 6.4 per cent, the second-highest in the sector after Lloyds TSB.

Cazenove also downgraded Jessops to “underperform” from “outperform” on consideration of its rescue plan released earlier this week. “Our scenario analysis indicates that Jessops has little margin for error,” it told clients.

“Management is taking positive action in terms of cost cutting and store closures, but we would question whether this will be sufficient. A turnaround depends, in our opinion, on a recovery in the sales line, which we believe will be difficult to achieve in the context of the significantly deflationary market in which Jessops operates.”

Bryce Elder

[email protected]

AGENDA

INTERIMS

Heavitree Brewery

Vectrix Corporation

FINALS

Berkeley Group Holdings

AGMs

Atrium Underwriting

BDI Mining Corp

Christie Group

Faroe Petroleum

Gresham Computing

Polyus Gold

Skyepharma

Tesco

EGMs

Teleset

TRADING STATEMENTS

Drax Group

IMI

Independent News & Media

ECONOMICS

UK Q1 revised business investment data (0930 GMT)

UK Q1 final GDP (0930 GMT)

UK May consumer credit, mortgage lending (0930 GMT)

UK GfK/NOP June consumer confidence survey (1030 GMT)

UK Q1 balance of payments

http://business.timesonline.co.uk/tol/business/markets/article2003712.ece

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