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A round up of some of the week’s most significant corporate events and news stories.
Alstom-GE agreement angers French government
Alstom forged ahead with a $13.5bn deal to sell its energy business to General Electric, despite incurring the ire of France’s socialist government, which threatened to block the deal, writes Michael Stothard in Paris.
The French engineering group left the door open to a rival offer from Siemens, but made clear its commitment to the GE deal, which would leave a rump standalone Alstom transport business.
Industry minister Arnaud Montebourg was irate that he had not been informed in advance of the talks with the US group, accusing the chief executive of Alstom, Patrick Kron, of “a breach of national ethics”.
“French companies are not prey,” said Mr Montebourg, suggesting that he preferred a rival bid from Siemens of Germany, which would involve assets swaps to create “European champions” in trains and power.
At a joint press conference in Paris with Mr Kron, GE chief executive Jeffrey Immelt said they were confident their deal would be completed, saying negotiations with the French government were constructive.
Shares in Alstom are up 22 per cent since news of the impending GE deal was leaked, although they were largely flat this week, with shares suspended for the first two days ahead of the announcement.
GE has argued that its plan to acquire Alstom’s energy business, which makes up 70 per cent of the group’s €20bn revenues, would not bring job losses.
● In-depth page: The Battle for Alstom
Twitter results do little to allay investor growth fears
Revenue more than doubled to $250m in the first quarter of 2014, better than Wall Street had expected, with a net loss of $132,000. Monthly users of Twitter rose by 14m to 255m people, but that growth paled in comparison to two years ago, when it was doubling its users year-on-year.
Sumner Redstone does not do deals very often. But when he does, he tends to make a splash, writes Matthew Garrahan. The nonagenarian billionaire hit the headlines this week when Viacom, the media conglomerate he controls, became the first US company to buy a free-to-air UK broadcaster.
Investors seemed unconvinced by claims from Dick Costolo, chief executive, that the “reach and impact” of Twitter is really much larger, thanks to promotion of tweets on other media.
Twitter stock fell 10 per cent to end the week below $40, but Twitter remains richly valued, with a market capitalisation of $22bn.
Mr Costolo said Twitter could tackle competition from chat apps such as WhatsApp by making it easier for users to move “more fluidly” between public and private conversations with smaller groups of friends.
During its earnings call, Twitter was quizzed by analysts about comments from NBCUniversal’s head of research Alan Wurtzel that its user base was too small to drive significant numbers of new viewers to television shows. Both Twitter and Facebook have touted the benefits to broadcasters of social media in attracting TV audiences but Mr Wurtzel said this “just isn’t true . . . The emperor wears no clothes.” Mr Costolo countered that its data did show a “two-way complementary relationship between Twitter and TV”.
WH’s valuation fails to convince in dropped IPO
WH Group, the world’s biggest producer of pork, was this week forced to scrap its Hong Kong initial public offering, which had originally been slated to be the city’s biggest since 2010, writes Josh Noble in Hong Kong.
Having cut the IPO in half a week earlier, the Chinese company chose to drop it altogether, after failing to convince investors to match its demands on valuation. At one point the offering was set to raise as much as $6.2bn.
WH Group is the product of last year’s takeover by China’s Shuanghui International of Smithfield Foods of the US. At $7bn, it was the largest acquisition to date in the US by a Chinese company.
Bankers gave a long list of reasons for the failure of the float, such as weak demand for Chinese assets, equity market volatility, and even the outbreak of a deadly virus among the North American pig population. The record number of banks hired to manage the deal – 29 in total – may also have complicated the process. None of them will now see a penny in fees.
However, the real sticking point was the valuation of a company that is in effect just a few months old. The Chinese and US businesses – market leaders – have yet to be integrated. Analysts say the rush to launch an IPO was driven by private equity shareholders seeking a fast exit.
The company is likely to return to the market with a new deal, late this year or early next. By then it hopes to have some evidence the tie-up is working – or it may have to lower its price.
Rio Tinto takes legal action against Vale over ore rights
The rivalry between Rio Tinto and Vale, the two largest suppliers of iron ore, hit a new level this week when Rio started legal action against the Brazilian group, accusing it of being involved in a conspiracy to steal its rights to one of the world’s richest deposits of the steelmaking metal, writes James Wilson in London.
Rio lost part of the Simandou deposit in Guinea in 2008 when the country withdrew the miner’s rights and awarded them instead to BSG Resources, the mining division of Israeli diamond tycoon Beny Steinmetz’s empire. BSGR later struck a deal to bring in Vale as a partner.
Now Rio’s lawsuit, filed in a New York court, says Vale, BSGR and individuals including Mr Steinmetz were part of a “fraudulent scheme” to gain Rio’s rights to Simandou. Rio, which still owns rights to another part of Simandou, says it lost billions of dollars.
The lawsuit extends the battle for control of Simandou, a high-quality iron ore resource. A Guinean committee has investigated claims BSGR obtained its rights to Simandou through bribery under a former government, leading to an announcement this month that mining licences for BSGR and Vale had been revoked – though the committee said it was likely Vale had not been involved in corruption and should not be excluded from any reallocation of the licence.
Vale and BSGR have denied any wrongdoing. A representative for BSGR and Mr Steinmetz, who deny the corruption allegations, called the lawsuit “baseless and bizarre”.
Chief hails ‘endless’ options after Serco profit warning
On his first day in a new job as chief executive of Serco, Rupert Soames was forced to defend the outsourcing company’s third profit warning in six months; another management departure as finance boss Andrew Jenner quit; and plans for a £170m emergency fundraising. The outsourcer’s market value has halved in 12 months and investors are concerned, writes Gill Plimmer in London.
But the question British taxpayers want answered is whether Serco can deliver good value on the billions of pounds’ worth of government contracts it holds in areas including welfare to work schemes, prisons and housing for asylum seekers.
The company remains under investigation by the Serious Fraud Office for overcharging on the electronic monitoring of offenders. Its “shoddy” housing of asylum seekers has come under fire, while it has also been forced to leave a deal providing out of hours GP services in Cornwall.
Mr Soames has given himself nine months to scrutinise the business, which employs 122,000 staff in 30 countries. He says he wants to get to grips with the problem of what led staff to commit fraud, given they do not receive extra pay or bonuses.
Morale also needs improving as staff turnover at
its British operations is high. But Mr Soames, the former boss at power generation company Aggreko, is confident he can do all of this. “At the moment Serco’s reputation is damaged but the opportunities for turnround are magnificent, the possibilities endless,” he said.
And finally ... the lighter side of the news
● What is wrong with the management of Co-op Group? This week, a report into its banking operation identified an “overly-casual” approach to regulators and a poor grasp of risk. But a slogan on its food store adverts has exposed a more basic deficiency: “May Bank Holiday Deals – because this weekend’s a third longer”!
● Fat Face, the fashion chain set up by two overgrown ski bums out of a VW camper van, is to float on the stock market with a £440m valuation. Its chief executive said: “We have worked hard to maintain the brand’s unique identity.” Or, as one FT wag tweeted: “Their stuff still makes everyone look like a midlife-crisis single father.”
● This week, Ladbrokes and Barclays highlighted the risk of job losses if regulators try to restrict payouts too much. One suggested that limiting potential winnings would lead to an exodus of habitual gamblers, on whose pursuit of personal enrichment an entire industry depends. And Ladbrokes said it might have to close some betting shops.
● It is a moment of acute social discomfort that all London-based professionals fear: being asked if you work in the City (especially by taxi hostesses). But now, even Saga staff in Folkestone stand accused. Investors told them to stop pretending they mainly sell holidays, and list their shares as an insurer.
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