Bad news, as the saying goes, comes in threes. The proverb has regularly felt truer than in the Square Mile this week, after it was rocked by a triple blow in de-listings, inflation and, of course, dirty water.
We take another look back on what was a particularly thorny week in the City.
Undervalued and under-appreciated: life on the London Stock Exchange
We start by addressing the increasingly routine, but stubbornly important, issue that is London-listed companies being the subject of speculative bids that hope to take advantage on languishing valuations.
This week, three more high-profile UK firms received and/or completed on take-over bids from individuals or foreign-listed competitors, including the owner of our once-revered, now-ailing national postal service, Royal Mail.
Minority shareholder Daniel Křetínský took markets off-guard with his proposal—made public on Wednesday (17)—to purchase the 72 per cent share of the company that isn’t currently in his hands. Bringing a whole new meaning to the phrase, ‘buying the dip’, the billionaire bidder—known, somewhat enigmatically, as the Czech Sphinx—will have to wade through an unenviable in-tray of law suits, high exec turnover and poor service, should the bid be successful.
From parcels to pop (you can’t say we don’t cover the full investment gamut here), and the music investment trust Hipgnosis, which owns the rights to veritable ‘bops’ such as Ed Sheeran’s Shape of You and Dua Lipa’s New Rules, was also subjected an ambitious bid. Despite its chequered recent past, the firm’s shareholders accepted a $1.4bn takeover from US competitor Concord Chorus, valuing the firm at a 32 per cent premium to its share price and prompting yet another de-listing from the London Stock Exchanging.
Making up the cosy triumvirate, DS Smith agreed on Wednesday to a £5.8bn takeover at the hands of yet another large US competitor. The cardboard maker – whose shareholders will no doubt be toasting the manner in which this deal has made them a different type of paper – had been subject to a bidding war that was eventually won by the rather unimaginatively named US beast, International Paper.
Moving in murky waters
Another week, another set of sorry stories about our lamentable water firms. But now it’s not just friends-of-City A.M . Thames Water that are sweating under the white heat of the microscope (though they didn’t escape another rollocking this week from our Chancellor).
An analysis of the sector found that, in the past two years, the providers of our most precious commodity have paid out £2.5bn in dividends while also racking up debts of £8.2bn. All of which has led blood-baying hedge fund managers to believe that the firms’ struggles might spread like e-Coli in a chalk stream. Predicting a tidal wave of trouble at some of the more precariously positioned water companies, analysts at US investors Millennium Management and Arrowstreet have taken up short positions on a water company each.
Inflation a thing of the past? Job on
Unless you’re an ambitious undergraduate on the cusp of a first (or a slightly lazy one scrambling for a 2:1), 0.1 per cent rarely makes a discernible difference to anything. It is – for all intents and purposes – a rounding error.
Except this week, 0.1 per cent was what separated market watchers being reassured by the healthy speed at which inflation was coming down (the predicted 3.1 per cent), and setting them into a tailspin about the stubbornness of price rises (the actual 3.2 per cent).
A large part of the panic can be explained by the data that accompanied the headline consumer price index number. Core inflation—which strips out volatile prices in energy and food—was down, but, again, the fall was slightly less than analysts had expected, leading analysts to push back when they expect a rate cut.
This added to the hot and cold jobs market data that came out on Tuesday (16), which saw unemployment jump unexpectedly to 4.2 per cent (a figure still historically low by most developed economies’ standards), according to the Office for National Statistics. While self-evidently worrying for the economy as a whole, the employment rate falling will have a deflationary effect that Andrew Bailey & co would factor in when weighing up any decision to cut rates.
Or at least, it would have done were it not accompanied by wage rises that outstripped inflation by 2.1 per cent on the year, counteracting any ‘cooling’ effect of higher unemployment.
One for the boffins on the Monetary Policy Committee to deal with. Rather them than us.