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“The FTSE 100 holds firm at the start of the new trading week, sitting still at 7,636. Gains among insurance, utility and banks stocks are offset by weakness among miners and pharma companies,” says Russ Mould, investment director at AJ Bell.
Virgin Money/ CYBG
“The two companies may have reached an agreement on a recommended all-share business combination, but it is too early to call it a done deal.
“While the target already has the backing of Virgin Money’s largest shareholder, Virgin Holdings with a c.35% stake, other shareholders will still have to approve the transaction.
“There is some strategic logic in putting them together but widely different cultures and the combination of two IT platforms are two major risks which could cause a hiccup or two down the line.”
South32
“It has been about five years since the non-oil commodities market reached a cyclical low point following its previous boom cycle, giving mining companies plenty of time to streamline their businesses and rebuild their financial strength.
“However, acquisitions have generally remained off the menu for much of the industry, perhaps as miners come under pressure from shareholders not to repeat the previous ‘growth at any price’ acquisition spree at the top of that last commodities boom.
“But is that now changing? Diversified miner South32 has announced a fairly decent sized deal, offering $1.3 billion to gain full control of Arizona Mining, a base metals miner.
“One of the benefits of management being more conservative since the last commodities slump is an increased focus on cash generation and operational efficiency. South32 is one of the better positioned miners in these circumstances, having ended March with a $1.9bn net cash position. Hence it is able to fund the Arizona deal entirely out of existing cash.
“While South32’s chief executive Graham Kerr calls Arizona’s Hermosa asset ‘one of the most exciting base metal projects in the industry’, he will still need to prove to shareholders that the acquisition can create value over the longer term and won’t join the ranks of endless mining deals that turned out to be value-destroying decisions.”
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