Markets & Finance

London SE Shares Fall on Auction Inquiry


em>From Standard & Poor's European MarketScope

Britain

The London Stock Exchange was down £0.22 to £4.52 Tuesday, after the Office of Fair Trading said it will refer the rival approaches for the company to the Competition Commission for a full inquiry into implications of the bids. This would take all summer and would mean that the auction for the exchange could not restart until September at the earliest.

Cleaning and office services firm Rentokil was up £0.05 to £1.65, following news that two venture capital groups have announced a public tender offer of 22 billion Danish krone for Danish-based cleaning and services group ISS. The bid is at 470 Danish krone per share in cash and investment management firm Franklin Templeton, with a 9.1% stake in ISS, has accepted the offer. Dresdner Kleinwort Wasserstein noted speculation suggesting that this implies that the company is in play, but thinks that is unlikely. The broker adds that the company's margins are high and under pressure and comments that new CEO Doug Flynn is set to start next week. The company is not a cheap stock, according to the broker, which retained its sell recommendation and £1.20 target price.

Soccer team Manchester United was up £0.04 to £2.72, after the Sunday Times reported that the company is set this week to unveil a rise in ticket prices that will boost revenues and undermine American billionaire Malcolm Glazer's takeover approach. Prices at Old Trafford stadium are to increase next season by an average of just under 10%, adding more than £5 million annually to the club's bottom line.

Brewer Scottish and Newcastle was up £0.09 to £4.79, after Baltika, its Russian subsidiary, jointly-owned with Danish brewer Carlsberg, reported fiscal year 2004 pre-tax profit up 30.9% year on year to $444.8 million on sales that were up 34.8%.

France

Steel giant Arcelor was down €0.44 to €17.55, after the company announced it will will cut production of flat carbon steel by 1 million tons in the second quarter due to lower demand. According to press reports, Arcelor wants a stake in China's Qingdao Iron and Steel Group Co., in a move that would strengthen the company's ranking among the world's top steel players. A senior executive at state-owned Qingdao Iron and Steel told a Malaysian newswire that the company was in early talks to acquire an unspecified stake in Qingdao Iron and Steel Group, valued at around $270 million.

European stock exchange group Euronext was down €0.50 to €27.50 after Britain's Office of Fair Trading said it will refer the rival approaches for the London Stock Exchange to the Competition Commission for a full inquiry into implications of the bids. This would take all summer and would mean that the auction for LSE could not restart until September at the earliest. Euronext said it will work closely with the Commission and adds that a combination of Euronext and LSE would benefit users and create value for shareholders.

Computer-services company Cap Gemini was down €0.42 to €26.08, after Credit Suisse First Boston said it believes the company's revenue guidance of 10% for fiscal year 2005 is at risk, and consequently there is likely to be some risk to margin guidance of 3% to 3.3%. The broker pointed out that the company's potential to reduce variable compensation in order to defend margin targets mitigates some of the revenue risk. However, the broker thinks it unlikely that this strategy will be sustained long term. The broker lowered revenue and earnings forecasts for the company by 1% to €0.76 in 2005, by 5% to €1.13 in 2006, and by 10% to €1.49 in 2007. It kept its underperform rating and €18 price target. Meanwhile, the broker Cheuvreux reiterated its buy rating and said a recovery story is underway.

Germany

Travel group TUI AG was down €0.44 to €20.67, after the bank HVB boosted its price target to € 23.5 from €22.5 with an outperform rating, citing strong growth in its tourism segment and a stable container unit performance in 2005. According to the Sunday Times, the company is to move its headquarters to Luton from London and will cut about 2,000 jobs. The bank M.M. Warburg reduced its earnings per share forecast for 2005 to €2.02 from €2.18, saying this mainly reflects further restructuring costs in the tourism division in the United Kingdom. The company expects two-digit earnings growth in the current financial year for the division. From 2006, earnings growth in tourism should pick up substantially after the non-recurrence of restructuring costs, according to M.M. Warburg's note. Shipping should generate stable earnings in 2005, whereas a marked reduction in earnings is likely for steel trading after a positive inventory effect in the previous year.

Retailer Karstadt was down €0.24 to €7.41, after a report in German newspaper Die Welt am Sonntag said that German waste-disposal company Rethmann is considering withdrawing from the competition to takeover two of the company's shipping centers, because of financial risks. Dealers say the story is little more than an old story given a new lick of paint. Another potential buyer, logistics firm Rhenus, said it is increasingly concerned about solvency issues linked to the operations that are for sale. Separately, a number of the company's 16 creditor banks haves old their credits to investment banks, including Goldman Sachs.

Airline Lufthansa was down €0.11 to €11.15, after newspaper NZZ am Sonntag reported the company may consider tie-ups with other airlines after agreeing to buy Swiss International Air Lines. The article also said that European airlines haven't reached critical mass and will face increased competition from US and Asian carriers. Separately, surcharges on tickets are seen rising 60%, in line with some other European operators last week.


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