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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

THG receives buyout proposal from private equity, FTSE 100 posts best run since December 2020 – as it happened

United Kingdom Deloitte United States Ian Stewart Economy
People on London Bridge in front of the City of London skyline.
People on London Bridge in front of the City of London skyline. Photograph: Vuk Valcic/SOPA Images/REX/Shutterstock

FTSE 100 extends gains

And finally, the UK stock market has racked up its longest winning streak since December 2020.

The FTSE 100 index has closed slightly higher, finishing 8 points higher at 7,879.51 , up 0.1%.

That’s its seventh daily rise in a row, a run last seen 29 months ago.

As covered earlier, share prices benefitted from a pickup on economic optimism, and hopes that interest rates rises may end soon.

A burst of takeover fever also cheered the City today, as last month’s jitters over the banking sector ease.

British Airways parent company IAG finished as the top riser, up 3%.

Updated

Here are today’s main stories so far…..

The UK’s FTSE 100 may not post its seventh daily rise in a row….

The share index is slipping back from its earlier highs, and is now up 15 points or 0.2% at 7886 points.

If it does close higher tonight, it would be the best run in almost 30 months….

Updated

Wall Street opens calmly as Alphabet drops

The New York stock exchange has opened calmly, with the main indices slightly higher in early trading.

The Dow Jones industrial average has gained 39 points or 0.12% to 33,926 points. cheered by the rise in New York factory activity this month.

The tech-focused Nasdaq has risen by 0.2%.

But, share in Google’s parent company Alphabet have dropped by 3.8% following reports last weekend that South Korea’s Samsung Electronics was considering replacing Google with Microsoft-owned Bing as the default search engine on its devices.

Updated

Cunliffe: stablecoins must be backed with high quality and liquid assets

Bank of England deputy governor Sir John Cunliffe has warned that tighter controls may need to be introduced for stablecoins.

Stablecoins – cryptocurrencies which are pegged to a fixed asset – could offer “greater efficiency and functionality in payments,” Cunliffe says.

But he cautions that it is “extremely unlikely” that any current stablecoins would meet the standards for robustness and uniformity currently applied to bank money by the BoE.

Speaking at the Innovate Finance Global Summit in London today, Cunliffe says:

Systemic stablecoins will need to be backed with high quality and liquid assets to be able to meet these expectations and standards, as set out by the Financial Policy Committee.

Cunliffe adds that policymakers haven’t yet decided if the UK should introduce a Digital Pound, but the Bank and Treasury’s assessment is that it is likely to be needed if current trends in payments and money continue.

A poll of City economists by Reuters has found that a narrow majority expect UK interest rates to rise again next month.

Out of 61 economists, 33 predicted the Bank of England will raise Bank Rate to 4.5% at its May meeting, up from 4.25% at present. The remaining 28 reckon rates will be left on hold – as did a majority of economists polled by Bloomberg (see earlier post).

Wednesday’s inflation report will help decide which group are right….

Activity at factories across New York state has unexpectedly expanded this month, for the first time in five months, as new orders and shipments recovered.

The New York Fed’s Empire State business conditions index, whch tracks manufacturing activity in the state, jumped 35.4 points in April to 10.8.

Economists had expected a reading of negative 15. Any reading above zero indicates improving conditions, and this is the first reading in positive territory in five months.

Reuters: G7 coalition to keep Russian oil price cap at $60 per barrel

Major advanced economices have agreed to maintain their current $60 a barrel price limit on Russian oil, after concluding that the cap is working. Reuters reports.

Here’s the story:

The Group of Seven (G7) coalition will keep a $60 per barrel price cap on seaborne Russian oil, a coalition official said, despite rising global crude prices and calls by some countries for a lower price cap to restrict Moscow’s revenues.

The G7 and Australia made the decision to maintain the cap over the past few weeks after a review of the $60 price - set in December with an aim to reduce Moscow’s ability to finance its war in Ukraine, the official said on condition of anonymity.

It comes after four weeks of gains in benchmark oil prices helped by an output cut announced by OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies led by Russia, as well as a recovery in Chinese consumption. [O/R]

The market was consolidating on Monday with Brent and U.S. crude futures holding above $80 per barrel. Russian crude has been selling at a discount of around $30 to Brent, the official said.

Coalition officials concluded the price cap was working to both limit Russian revenue while maintaining energy market stability, but said they would continue coordinating to ensure effective monitoring and enforcement, the official added.

The oil price cap bans G7 and European Union companies from providing transportation, insurance and financing services for Russian oil and oil products if they are sold above the cap.

Moscow retalilated to the move last December with a decree that banned the supply of crude oil and oil products to nations that impose the cap.

In the commodities markets, tin prices have soared today as reports of a mining ban in major producer Myanmar fuels worries about shortages.

Benchmark tin on the London Metal Exchange was up 9.2% this morning at $27,150 a tonne, having hit $27,705/tonne at one point – its highest since February 21.

Reuters has more details:

Myanmar’s Wa state will suspend mining resources exploration from August, according to an information official from the United Wa State Army.

Myanmar has the world’s third largest reserves of tin, according to the U.S. Geological Survey. It accounted for 77% of China’s tin ore imports in 2022, China’s customs data showed.

More here:

Full story: THG shares rise on private equity takeover move

The share price of the online retail tech company THG has surged after it received a takeover approach from the US investor Apollo, amid a spate of attempted private equity takeovers of mid-sized British companies.

THG’s share price jumped by 34% on Monday morning to 88p, having reached 97p in earlier trading, after it revealed the approach in a statement to the stock market. It was valued at £860m on Friday before the offer was revealed.

The online shopping group, which was formerly known as The Hut Group and whose largest shareholder is its founder Matthew Moulding, gave no details about the offer other than saying it was a “highly preliminary and non-binding indicative proposal”, and that there was no guarantee a firm offer would be made.

The approach was the latest in a series of bids for British companies by foreign private equity firms, with Britain seen as “ripe for takeovers”, according to one analyst.

Here’s the full story:

Consumer confidence falls for the first time in 2023

Just in: UK consumer confidence has dipped slightly this month, for the first time in 2023.

Polling firm YouGov’s guage of consumer morale declined by one point in April, from 100.4 to 99.4.

UK consumer confidence index

The index measures how confident people are about their household finances, property prices, job security, and business activity, both over the past 30 days and looking ahead to the next 12 months.

Almost every tracked measure dropped in March, with people’s assessment of ‘short-term job security’ and ‘business activity’ seeing the most significant falls.

However, people were a lttle more confident about their household financial situations.

UK consumer confidence report

Kay Neufeld, director and head of forecasting and thought leadership at Cebr, says:

“Consumer confidence fell back into negative territory in March, with the YouGov/Cebr Index sliding to 99.4. The only improvements among the sub-indicators were seen for the two metrics related to household finances, though both remained well below their long-run averages as UK consumers continue to feel the impacts of high inflation.

The deterioration in overall consumer sentiment reflects the ongoing economic challenges faced by the UK, such as high borrowing costs and the cost-of-living crisis. Moreover, March saw the global banking system coming under strain following the collapse of three smaller US banks, forcing regulators and central banks to intervene.

Fear of further contagion and potential negative implications for the economy could have contributed to the deterioration in consumer confidence last month.”

The 40% rally in THG’s shares today lift its value to £1.2bn, up from £858m on Friday night.

The company was valued at £4.5bn when it floated in September 2020, and promptly jumped by a quarter.

Here’s The Sun’s Ashley Armstrong on the THG approach:

Bloomberg’s Katie Linsell points out that THG has faced problems since floating on the stock market in 2020.

Linsell writes:

Formerly known as The Hut Group, the company co-founded by chief executive officer Matthew Moulding has had a bumpy ride since going public due to governance concerns, the surging price of whey — which it uses in its protein shakes — and speculation over the future profitability of its Ingenuity arm.

Last year property entrepreneur Nick Candy walked away from making an offer for THG, as did a rival consortium consisting of Belerion Capital and hedge fund King Street Capital Management.

Here’s Victoria Scholar, head of investment at interactive investor, on the latest private equity bid for a UK company.

“Another PE offer comes to the table. London-listed tech company THG said it received a buyout proposal from Apollo Global Management, although terms of the potential deal are unknown. Apollo has until 15th May to make a formal offer.

THG has been the subject of takeover speculation from private equity since last year with reports in February that Apollo, Advent International and Leonard Green Partners were circling the e-commerce group. THG has suffered heavy share price declines, down almost 90% since its £5.4bn listing in 2020 before today’s jump. Shares are up over 40%, hyped by the prospect of a buyout.

The business has been struggling with heavy losses, job cuts, delivery disruptions, rising debts, and cost inflation. It issued a profit warning in January after full-year revenue growth came in at just a fraction of analysts’ expectations.

THG and Deliveroo are among the high profile London flotation disasters in recent years, denting confidence in the UK among international investors as a key destination for tech IPOs.”

THG receives highly preliminary approach from Apollo

Newsflash: Online shopping group THG says it has received a very preliminary takeover approach from Apollo, the private equity firm.

In a statement to the City, THG says:

The Board of THG notes the recent press speculation regarding THG and confirms that it is currently in receipt of a highly preliminary and non-binding indicative proposal from Apollo Global Management Inc, on behalf of certain of its affiliated funds, to acquire the entire issued and to be issued share capital of THG.

There can be no certainty that any firm offer will be made. A further announcement will be made if and when appropriate.

Apollo now has until 5pm on 15 May to either make a firm offer, or walk away, THG adds.

In January, THG warned its profits would miss forecasts this year, blaming delivery disruption, contract delays and falling sales at one of its key divisions.

A year ago, THG dismissed “numerous” takeover approaches as “unacceptable”, saying they undervalued the company.

Shares in THG, formerly called The Hut Group, have surged by 45% to their highest level since last June.

They’ve risen to 94p, up from 66p on Friday night. That’s still sharply below the 500p at which the company floated in 2020, when it was benefitting from the pandemic boom in internet shopping.

Updated

European stock markets are also moving higher this morning, with Germany’s DAX up 0.16% and Italy’s FTSE MIB gaining 0.25%.

Pierre Veyret, technical analyst at ActivTrades, explains:

European shares openened on a positive note, following the lead of Asian benchmarks, as risk appetite remains strong at the beginning of this new week.

The bullish sentiment continues and investors may be willing to push stock indexes to new highs, despite lingering concerns over higher borrowing rates and economic recession. This sustained appetite for riskier assets may come from the fact some investors see the current monetary tightening cycle to be closer to the end than the beginning, while expecting a shallower recession than initially anticipated.

Additionally, last Friday’s strong Q1 earnings from US banks, amid industry turmoil, is also fueling optimism across equities. Most sectors in Europe are trading in the green in Europe, with the top movers being registered in industrials, basic materials and energy stocks.

Bloomberg: UK heads for pause on interest rates

Hopes that UK interest rate increases could soon be over are also cheering the City.

More than half of economists in a Bloomberg News survey now think the Bank of England will refrain from raising its key rate again.

BoE Bank Rate is currently 4.25%, and its monetary policy committee will decide in early May whether to raise it again.

Economists suspect that the pressure on the BoE will ease on Wednesday, if inflation dips below 10% for the first time since August.

“It’s pretty clear that labor market tightness is fading,” said Robert Wood, chief UK economist at Bank of America.

Wood adds:

“Certainly that’s good news for the Bank of England, and it does make the May decision a really close call.”

The money markets, though, are that indicating a rate rise in May is a 70% probability.

Updated

FTSE 100 on track for best run since December 2020

Rising economic optimism is helping to lift shares in London this morning.

The FTSE 100 index of blue-chip shares is on track for its best run in over two years.

I’t’s up 33 points, or 0.4%, at 7095 points, the highest in over five weeks. as shares recovered from the turmoil in the banking sector last month.

This would be the FTSE 100’s seventh daily rise in a row, its best run since December 2020.

Industrial and electronics products distributor RS Group are the top riser, up 2.4%, after RBC raised its rating on the stock, followed by airline group IAG (+1.8%) and packaging firm DS Smith (+1.8%).

The news that UK CFOs are more optimistic about economic prospects has brought some cheer to the City.

The takeover approaches for Network International and John Wood (both members of the smaller FTSE 250 index) could also spur stocks higher, after decent financial results from JP Morgan last Friday.

“The FTSE 100 made brisk progress on Monday as a solid start to the US reporting season and a sprinkling of M&A activity helped buoy sentiment,” says AJ Bell investment director Russ Mould.

“Given all the drama around the sector in recent weeks it felt important that the big American banks which reported last Friday beat market expectations.

While corporate announcements from the US are likely to continue to grab the headlines, a lot of the spotlight in macroeconomic terms is likely to be drawn by China with a raft of data set to be published imminently. For a FTSE 100 index teeming with resources stocks, this could have a big bearing given China is such a rapacious consumer of commodities.

Investors will be watching closely for signs of a recovery from a Chinese economy emerging from strict zero-Covid restrictions.

Updated

EY Item Club: UK now on course to avoid recession

UK now on course to avoid recession, according to the EY ITEM Club Spring Forecast.

The economic forecasters predict UK GDP will rise by 0.2% this year – adding to the optimistic mood this morning.

Although that’s only marginal growth, its better than the 0.7% contraction expected three months ago in its Winter forecast.

EY ITEM Club predicts that:

  • The UK economy is forecast to flatline in the short term and avoid two consecutive quarters of contraction – before better growth later in 2023

  • House prices are expected to fall by around 10% peak-to-trough, although a serious correction is unlikely and the impact on the economy will be limited

  • Historically high inflation should fall quickly in the coming months, with cheaper energy having a significant effect

The UK economy seems to be turning a corner, “albeit very slowly”, explains Hywel Ball, EY’s UK Chair:

Economic performance has been resilient, despite challenges in the latter half of 2022, but the significance of the upgraded outlook shouldn’t be overblown. While easing, the economy’s challenges haven’t gone away overnight: inflation is still in double-digits and energy prices remain historically high.

“However, perceptions matter and the fact the economy has been able to outperform expectations could help stir a revival in business and consumer confidence. Of course, there is still room for economic surprises, but the balance of risks has become a little more favourable than the last forecast. And while subdued growth this year is far from ideal, falling energy prices and inflation, an end to rises in borrowing costs, and growing confidence, mean the economy has a chance to shed some of the gloom it has accumulated recently.”

Updated

Sega offers to buy Angry Birds creator Rovio

Another takeover deal: Japanese gaming giant Sega Sammy has agreed to buy Angry Birds maker Rovio Entertainment.

The groups confirmed in a joint statement this morning that Sega, the firm behind franchises such as Sonic the Hedgehog, will buy its Finnish rival for €706m (£625m).

It comes after Rovio confirmed the companies were in discussions over a potential offer on Saturday.

Sega will pay 9.25 euros per share and 1.48 euros per share option for the mobile gaming business.

The Japanese firm has said it plans to “accelerate” growth in the global gaming market through the deal and create synergies between the two businesses.

Alexandre Pelletier-Normand, chief executive officer of Rovio, said:

“I grew up playing Sonic the Hedgehog, captivated by its state-of-the-art design.

“Later, when I played Angry Birds for the first time, I knew that gaming had evolved into a true mainstream phenomenon, with the power to shape modern culture.

Royal Mail shares surge after pay agreement reached

Shares in Royal Mail’s parent company have jumped over 5% after it reached an agreement in principle with union leaders over the long-running dispute over pay, jobs and conditions.

Royal Mail said last night it had reached a negotiators’ agreement with the Communication Workers Union (CWU), the details of which will be made public once it has been ratified by the union’s executive committee, which is expected to take place next week.

Workers had staged a series of strikes last year, affecting its 112,000-strong workforce, and leading to concerns Royal Mail could be put into administration.

The joint statement said:

“After almost a year of talks, Royal Mail and the Communication Workers Union are pleased to announce they have reached a negotiators’ agreement in principle.

Shares in Royal Mail have jumped to their highest level since early March this morning.

The share price of Royal Mail owner IDS over the last year
The share price of Royal Mail owner IDS over the last year Photograph: Refinitiv

Updated

Takeover action in the City

There’s a flurry of takeover excitement in the City this morning too.

Network International, which is the largest payment processing firm across Middle East and Africa, has received a takeover proposal from a consortium of CVC Capital and Francisco Partners.

This value the London-listed company at about £2.06bn, or 389p per share.

Shares in Network International have jumped 20% to 364p per share, having also jumped on Friday when CVC’s interest was reported.

Eslewhere, oilfield services and engineering firm Wood Group says it has decided to engage with Apollo Management, over an approach worth £1.66bn, or 240p per share.

Apollo is now required to announce a firm intention to make an offer for Wood by May 17th.

Victoria Scholar, head of investment at interactive investor, tells us:

“Having previously rejected four offers from Apollo, John Wood Group said it is willing to engage with the private equity firm again. A fifth proposal has been submitted to the Board at a final price of 240p per share in cash, valuing the engineering services company at £1.66 billion.

The deadline for a firm offer from Apollo has been extended from 19th April until 17th May. Speculation of a takeover has supported Wood’s shares this year, which are up over 49% to Friday’s close.

The recent recovery in sterling, which hit a 10-month high over $1.25 last week, could also be spurring some potential buyers to make their bids for UK firms now. If the pound keeps rising, it would make it more expensive for foreign firms to buy British companies.

Scholar explains:

This deal adds to the flurry of private equity M&A activity in recent days alongside Dechra Pharmaceuticals, Network International and property company Industrials REIT. There is a sense among international investors that the UK is ripe with takeover targets.

The recent rebound for the pound suggests opportunistic buyers need to make the most of sterling’s weakness before it appreciates further and is too late.”

CFO's expect boom in AI spending

Deloitte also investigated CFO views on artificial intelligence – and found that bosses expect “significant growth in capital spending on AI”.

That, they believe, will help drive UK productivity.

However, CFO’s were almost equally divided between those who believe that AI will lead to an increase in the number of jobs and those who believe it will shrink the human workforce.

Deloitte's latest CFO survey

Stewart explains:

“The CFOs foresee artificial intelligence helping to drive UK productivity, an outcome that could provide a lasting boost to business growth.

They are divided, however, on how AI will affect the number of jobs in the economy, highlighting the need to ensure the gains from new technologies are widely shared.”

Campaigners, trade unions and MPs agree. They’re calling for stricter oversight of the use of artificial intelligence in the workplace, amid growing concerns about its effect on staff rights.

Introduction: UK business confidence bounces after energy prices fall

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The health of the UK economy appears to be picking up, with finance bosses at top companies more optimistic about growth prospects.

Deloitte’s quarterly poll of chief financial officers across UK boardrooms has found the sharpest rise in confidence since the rollout of COVID-19 vaccines at the end of 2020.

Having run markedly below average throughout last year business confidence has risen sharply, Deloitte says, and is now well above its long-term average.

Deloitte’s CFO survey of business confidence
Deloitte’s CFO survey of business confidence Photograph: Deloitte

Confidence has been lifted by the recent big fall in energy prices, as Britain also got through last winter without energy blackouts which had been feared.

Next-month natural gas prices are trading around 100p per therm today, having hit 640p per therm last August as Russia cut Europe’s gas supplies.

Brexit fears have been eased by the Windsor Framework, addressing some of the problems with UK-EU trading relations.

CFOs reported a marked easing of supply chain and recruitment problems, while firms are also expecting inflationary pressures to ease; expectations for inflation in one year’s time have declined from 5.8% to 4.2%.

Wednesday’s UK inflation data is expected to show a small fall in consumer price rises, to around 9.8% per year in March from 10.4% in the year to February.

Deloitte’s CFO survey

But risk appetite is below normal levels, with CFOs heavily focussed on cost control and building up cash.

Ian Stewart, chief economist at Deloitte, says:

“The economic unpredictability that marked the beginning of 2023 has started to clear, with CFOs reporting the largest decline in perceptions of uncertainty to date. Business confidence has rebounded, helped by a decrease in energy prices, an easing of Brexit concerns and an improving inflation backdrop.

Crucially, finance leaders report little change in credit conditions, suggesting that March’s events in the global banking system have not affected the pricing and availability of credit for UK corporates.

Despite a brighter outlook, CFOs are alive to the continued risks facing the economy. Corporates remain in defensive mode and CFO risk appetite is subdued.”

Last Friday we learned that the UK economy has risen above its pre-pandemic levels, despite failing to grow in February.

The agenda

  • 10am BST: China’s Foreign direct investment data

  • 2pm BST: Bank of England deputy governor Sir John Cunliffe gives keynote speech at the Innovate Finance Global Summit

  • 3pm BST: NAHB US housing market index

  • 4pm BST: ECB president Christine Lagarde gives speech at the Council on Foreign Relations

Updated

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