Shire slides on $19bn deal talk but Diageo jumps on takeover report

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Investors continued to be nervous about Greece’s precarious financial situation, with an agreement between the cash-strapped country and its creditors seemingly as far away as ever, despite the deadline for a deal rapidly approaching.

But a spate of takeover speculation proved a welcome distraction from the never-ending eurozone crisis.

Shire fell 150p or 2.7% to £53.05 on talk the pharmaceuticals group was considering a $19bn bid for Swiss biotech group Actelion, in a move to boost its rare diseases business. The suggestion sent Actelion’s shares soaring 10% but Shire fell on concerns it could overpay - if indeed it is interested in Actelion. Deutsche Bank said:

In theory, the deal would add a further growth engine within Shire’s core rare diseases focus area, along with a late-stage pipeline in infectious disease and multiple sclerosis. Shire could also leverage Zavesca (oral Gaucher treatment; marketed) and pipeline drug lucerastat (oral Fabry treatment) through its existing sales force selling Vpriv/Replagal. While direct synergies with Actelion’s PAH sales and marketing capability are unlikely to be material, we would expect Shire to be able to extract meaningful corporate overhead savings, as well as absorbing R&D spend within its budget.

Given the size of the transaction suggested in the [Sunday Times] story, we would expect any deal to require a mix of cash and equity. As a reminder, Shire had net debt of $2.6bn at the end of the first quarter of 2015 and has shareholder approval to increase this to $12bn if required. Assuming a 50:50 cash/equity deal, a 4.5% cost of debt, and achievement of savings/synergies equivalent to 30% of Actelion’s R&D and [expenses], we believe the deal could be accretive to..earnings per share in the high single digits within 3 years and ultimately reach double digits. However, with significant upside to our Actelion forecasts/valuation if Uptravi sales exceed expectations, we believe a 30% plus premium may be required to secure a deal. This would moderately erode earnings accretion potential and require issuance of a greater proportion of equity.

Diageo was the day’s biggest FTSE 100 riser, up 119.5p or nearly 7% to £18.80 after reports that Brazilian private equity firm 3G Capital was considering a bid for the drinks group.

Vodafone added 1.95p to 244p on hopes that US group Liberty Global might want a bigger deal than the asset swap under discussion between the two.

But BT dipped 0.6p to 438.80p, losing early gains in the wake of a report that Deutsche Telekom might turn its attentions to the UK group if it seals a deal to merge its T-Mobile US business with satellite pay-TV operator Dish Networks.

At the City’s Extel awards lunch, BT chairman Sir Michael Rake quipped he was pleased to see that two categories were won by Deutsche Telekom “our future major shareholder maybe”.

Overall the FTSE 100 finished down 14.56 points at 6790.04 - a new two month low - following weaker than expected Chinese trade data and of course, the continuing Greek impasse. Michael Hewson, chief market analyst at CMC Markets UK, said:

European markets have continued where they left off at the end of last week, as rising bond yields and the continued impasse over a new Greece deal keep investors cautious.

Since the October lows [Germany’s] Dax is still up over 20% so some type of pullback was eventually likely to take place, and it looks like we are seeing that correction from the highs in April continue to play out, as the German benchmark moves more than 10% away from its recent highs and into correction territory.

Increasingly strident language from both the Greek side and the EU side isn’t helping either with French officials saying that a Greek exit would be no big drama.

It seems that for all the rhetoric coming out of Europe that each side is talking over the other, with neither side actually listening to what the other is saying, which doesn’t bode well for a successful outcome.

Among the mining groups, BHP Billiton lost 19p to £13.08 and Anglo American fell 10p to 1005.5p as Exane BNP Paribas cut its price targets on the two companies.

But Royal Mail rose 7.3p to 500p as Bank of American Merrill Lynch lifted its target price from 500p to 600p. The bank acknowledged the UK parcel market was competitive but said that the chances of a positive regulatory announcement in mail were underestimated by market. It said there was a limited likelihood of a new competitor entering the mail delivery service to replace Whistl, which suspended its services in early May.

Publisher Pearson put on 8p to £13.04 as Natixis raised its target from £15 to £15.50 with a buy rating.

And Tui also benefited from positive coverage. The tour operator’s shares added 14p to £11.84 after Barclays lifted its target price from £13.24 to £13.60. Analyst Patrick Coffey said:

Over the last month Tui hosted a Capital Markets Day which promised several avenues for future growth: it is now time for the newly combined Tui group to start to deliver on these promises. If the company successfully delivers against these targets, we think it will provide investors with strong earnings per share growth and optionality over the next four years.

Finally Aim-listed Armadale Capital, an investment company focused on natural resources projects in Africa, jumped 171% to 0.061p after it reached an agreement to fund the Mpokoto gold project in the Democratic Republic of Congo. Under the deal, the African Mining Contracting Services group will find $20m of loan financing to bring Mpokoto into production, which is targeted for the first half of 2016. Armadale is looking to produce 25,000 ounces of gold per annum over a nine year life of mine with a targeted cash cost per ounce of $650. Gold is currently around $1172 an ounce.

Powered by Guardian.co.ukThis article was written by Nick Fletcher, for theguardian.com on Monday 8th June 2015 17.15 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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