It’s déjà vu for investors all over again as hints of a rapprochement between the US and Iran saw oil prices fall and risk sentiment improve.
The FTSE 100’s advance was constrained by a negative reaction to AstraZeneca’s reported interest in a merger with Bristol Myers Squibb and by weakness in its oil and gas heavyweights BP and Shell. However, aviation-linked stocks and housebuilders made solid progress in London. Other European markets chalked up material gains and futures pointed towards a positive showing on Wall Street later.
Asian markets were more mixed. Another key market worry, apart from the ongoing situation in the Middle East, is lofty valuations in the AI space and this saw South Korean stocks slump heavily overnight.
News Washington has cancelled strikes and will resume talks with Tehran, apparently after pressure from its allies in the Gulf, has seen Brent crude oil drop below $84 per barrel. But the market has been here before and a more concerted fall in crude and in government bond yields will require greater evidence that a lasting resolution can be forthcoming this time round.
AstraZeneca
The speculated blockbuster merger between AstraZeneca and US rival Bristol Myers Squibb would have implications outside of the pharmaceutical sector.
Assuming it went through, AstraZeneca would likely overtake HSBC to become comfortably the largest company on the FTSE 100. However, the fear will be that such a move, coming on top of the company’s recent direct listing in New York, would pull its centre of gravity across the Atlantic and ultimately see the UK stock market lose one of its crown jewels.
Current CEO Pascal Soriot was a big player in the company’s decision to reject a takeover bid from Pfizer for £70 billion in 2014 and has been vindicated in the interim. A tie-up with Bristol Myers Squibb could help the business to reach its ambitious revenue goals, with North America already a key source of growth.
The initial market reaction to the reports is highly circumspect, reflecting understandable caution about the scale of the deal. Major transactions of this kind often run into difficulties around integration and matching up different workplace cultures.
Getting a deal across the line could be as difficult as putting together a 10,000-piece jigsaw with the companies’ overlapping focus in oncology likely to attract scrutiny from competition authorities. Political pressure might also be brought to bear, particularly on these shores given the importance of AstraZeneca to UK plc.
EasyJet
It’s no surprise to see EasyJet get its ducks in a row by pushing the deadline for suitor Castlelake to the end of this week to match up with rival bidder Apollo.
With EasyJet currently favouring the better terms on offer from Apollo, Castlelake would have to up the ante if it wants to secure the airline. Friday’s outcome will reveal if appetite for EasyJet has been affected by the latest events in the Middle East.
Assuming a firm takeover is agreed, this is likely to be the end of the beginning rather than the beginning of the end of the saga given potential difficulties in navigating the transaction past regulatory hurdles.
If a deal does end up going through, EasyJet shareholders might have mixed feelings – with a takeout price above levels seen in recent years but below the immediate post-Covid highs and less than half the levels attained in the mid-to-late 2010s.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
