Melrose to Victory

Thursday, 29 March: Markets cautiously moved higher on Thursday morning, despite tech stock nerves still unsettling markets. This was behind the poor session on Wall Street yesterday that saw the NASDAQ close 0.85% lower. Asian bourses through the nigh moved generally higher, the Nikkei closing 0.61% higher. The FTSE was marginally higher at 0.3% in early trade, led by supermarkets and miners. UK house builders also showed modest gains after data showed annual house price growth was steady at 2.1% during March, yet this was down versus February’s growth rate of 2.2%.

Returning to the tech sector, what’s the reason these shares are having such a hard time at the moment? Especially in the US the sector has seen shares climb over a prolonged period of time, after tax cuts helped spur confidence and of course the consumer’s unwavering desire for their products. But as the gift and curse goes, calls for tighter regulation of these firms, data concerns and events like the death caused by a driverless car has shook investors. The NASDAQ which is tech laden, has of course been hit hardest. With big names like Facebook and Tesla suffering due to their recent PR fiascos and now Amazon shares sliding after a recent Trump report looks to target the online retail giant. Trump wants to use anti-trust law to limit Amazon’s expansion. Again Amazon have had a terrific run, seeing their CEO become the world’s richest man due to the success of their shares, as well as Amazon basically entering every market you can possibly think of with immediate success and economies of scale un-paralleled by most. As Trump is a golfer he probably just sees this as a way of handicapping Amazon because of their success. Yes, I’m sure what this is all about.

Back in the UK, the owner of Bargain Booze Conviviality plans to file for administration within the fortnight. Unlike many other retailers that have followed a similar path lately, Conviviality were seemingly on track until very recently. First came a profit warning which blamed forecasts and immediately prepared investors to see a c.20% drop in profits. Then just for a kicker they announced they had a £30m tax bill that they needed to pay by the end of the month, surprise. So as bad luck comes in threes, the final chapter is probably the least surprising. Their attempt to raise £125m from shareholders has failed, many still dealing with the hangover from a share price decline of 75% since the turn of the year.

At 1pm today the fate of British engineering giant GKN was decided. The decision that was made was surrounding the approval or rejection of the hostile takeover approach from Melrose industries. GKN is an engineering giant flying the flag for the UK, hence the reason why so many are concerned about the takeover. Melrose have already improved their initial bid and been in talks with the government and unions around issues like pensions, future investment and short term business strategies, given Melrose is a turnaround specialist and this could mean fairly quick and drastic changes from Melrose. The conclusion? Despite their best efforts the takeover has been approved. Shareholders won with around a 52/48 split vote. Shares in GKN rallied to top the FTSE following the news, closing almost 9.5% higher.

Barclays today agreed to settle a $2bn US lawsuit relating back to the global financial crisis in 2008, yes those pesky mortgage backed securities are still haunting banks. It was alleged that they had mislead investors about the quality of the loans…. which, well, we all know they did. Shares in the bank actually saw a modest climb before tapering off to end the day +0.25%, probably down to fears that the cost could have been much larger.

To conclude, the FTSE hung onto gains to close 0.17% higher today at 7056.6, with other Euro bourses enjoying larger gains on Thursday. US markets have begun higher, with the NASDAQ bouncing back from yesterday’s poor session to trade +1% as we write. Finally, today confirmed that Spotify will list on 3 April on the NYSE.

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