21 September 2018

Scott Reid

21 September 2018

Good morning,

Two sides left standing in the last chance saloon. Pistols drawn to battle it out once and for all.

No, not a mixed metaphorical way for the prime minister to overcome her latest challenge with the EU over Brexit. Instead, the proposal that the fate of Sky plc’s acquisition between rival bids offered by 21st Century Fox and Comcast will finally be decided during a three-round auction due to be held on Saturday evening in London.

Yesterday, the UK Takeover Panel announced that the rival bids will be invited to enter the closed auction if a resolution to the proposed takeover hasn’t been found by 5pm on Friday. Under the rules of the auction, the company with the lowest offer in the first round will be able to increase their bid, followed by an increase by the other company’s bid in the second round. If no clear winner has emerged at that point, both companies will be invited to make a final increased bid with an announcement made as “soon as practicable” after that. 

And about time too. The trench warfare for Sky between film and TV group 21st Century Fox and cable giant Comcast has been ongoing since December 2016, when Fox – already Sky’s single biggest shareholder with a 39.1% stake – said it wanted to take full control. That original valuation of Sky at £18.5 billion, before a government referral to Ofcom and a drawn-out bidding war, has now jumped to £26 billion, a bid by Comcast which remains the highest on the table. 

Desperate times calls for desperate measures. This particular style of auction is rare, having only been resorted to by the Takeover Panel four times since rule changes in 2002. This time, though, the stakes are much higher; a 2007 contest for Corus, the owner of British Steel, was won by Tata Steel with a £6.2 billion bid, and in 2008 – the last such auction – American company Manitowoc bought kitchen equipment maker Enodis for £948 million.

And while the auction due to take place just behind St Paul’s Cathedral seems as decisive as it gets, there is a slim chance that both companies could end up with identical bids. What next? Well, a cathedral precinct would indeed be an interesting spot for a pistol duel.


Leaders of the EU28 strongly rebuffed Theresa May’s proposed Chequers deal for Brexit at an extraordinary meeting in Salzburg yesterday. The prime minister said that she had held “frank discussions” with EU president Donald Tusk, who suggested that key parts of the plan concerning UK access to the EU’s single market and customs union “will not work”. May has warned that the choice remained solely between “her deal and no deal”, and insisted that her government would not hold a second referendum on Britain’s departure should no agreement be struck. Tusk has now given the UK government four weeks to meet the EU’s terms.

The FT reports that shadow chancellor John McDonnell will unveil plans that would break-up Britain’s ‘Big Four’ auditing companies should Labour win office at the next election. Ahead of the Labour Party conference that starts on Sunday, McDonnell told the FT that the companies – Deloitte, EY, KPMG and PwC – represented a ”cartel”, having recently been connected with several financial reporting scandals including BT and Carillion. (£)

The UK government has announced that a forthcoming white paper will suggest the creation of an independent internet regulator similar to Ofcom. According to Buzzfeed News, the plans will be published this winter and are expected to cover electoral law reform to include clear rules on political advertising, possible taxation of social networks to pay for digital literacy programmes, and greater transparency in online advertising. 

At least 42 have died with hundreds more missing after a ferry capsized on Lake Victoria, Tanzania. The MV Nyere ferry was carrying more than 400 passengers, and is thought to have overturned when crowds on board moved to one side as it docked near the islands of Ukora and Bugolora.

Business & Economy 

Nearly a third of shareholders in Ryanair have refused to support the re-election of its chairman at the airline’s AMG yesterday. A substantial 29.5% voted against the re-election of David Bonderman, amid concerns over the independence of his position and the length of his tenure. Bonderman, 75, has chaired Ryanair for 22 years whilst the UK governance code recommends a maximum tenure of 9 years. (£)

Amazon could open as many as 3,000 inner-city grocery shops by 2021 under plans reported by The Times. Amazon said on Wednesday evening that it was considering a wider expansion of its grocery shop brand, Amazon Go, which lacks cashiers and uses an AI motion-tracking system to record shoppers’ purchases. Amazon Go opened its first branch this year with three further venues across Seattle and Chicago. (£)


What happened yesterday?

Strong retail data and gains in the mining and financial sectors led the FTSE 100 to a ten-day high on Thursday, matched by an optimistic mood among investors in the pound. By close of play, the London market was up 36 points at 7,367.32, or 0.5% higher.
Starting the trading day off on a good note, data released by the ONS showed that UK retail sales rose 0.3% month-on-month during August despite expectations of a 0.3% decline, implying an annual gain of 3.3%. Marks & Spencer (up 2.29%) and Primark owner Associated British Foods (up 2.70%) both traded higher on the data.
Mining companies Fresnillo (up 2.66%), Rio Tinto (up 2.54%) and Antofagasta (up 2.43%) were also among yesterday’s market leaders, indicating a rallying optimism among mining investors despite the threat of escalating trade tariffs between the US and China. Rio Tinto was helped in particular after it announced plans for a $3.2 billion share buyback programme following the disposal of its coal assets.
Despite events in Salzburg, Cabinet Office minister David Lidington, during an interview with Irish radio, remarked that Britain was 85% to 90% of the way to agreeing a Brexit deal in time for summits organised in October or November. This was the main propeller behind gains made by sterling, which ended the day stable on the euro at €1.13, and up by 0.96% on the dollar at $1.33.

Smiths Group
M&C Saatchi

AXA Property Trust Limited

Annual Report

Fusion Antibodies
Mercia Technologies   
Sirius Real Estate Ltd.   
Tungsten Corporation

UK Economic Announcements
(09.30) Public Sector Net Borrowing

Columns of Note

Fraser Nelson writes in The Telegraph that the Salzburg summit of EU leaders has now killed off Theresa May’s Chequers proposal, paving the way for a ‘blind Brexit’. Nelson suggests that the EU might have been willing to accept a watered down version of the proposal in a Canada-style free trade agreement that wouldn’t have resolved the Irish border question. Instead, he suggests a “blind Brexit” is likely, leading the prime minister to agree an inconclusive deal in order to avoid no-deal, which includes the continuation of UK payments to the EU without specific details on the workings of the future relationship. He stops short of suggesting that Salzburg has signalled the demise of the May premiership, and casts doubt on whether any of her peers would be able to extract a better deal. (£)

Alistair Osborne suggests in The Times that Michael O’Leary’s latest attempts to undergo a character change as CEO at Ryanair spectacularly failed at the airline’s AGM yesterday. He points out that after two profit warnings, you’d think a chief executive might exhibit more contrition in the face of investors. Instead, Osborne speculates, O’Leary’s job (as well as that of his chairman which incited a shareholder revolt yesterday), may be on the line. (£)

Did you know?

Armadillos leap into the air when they are afraid or when air is blown into their bottoms.

Parliamentary highlights


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