
- Fed inches closer to cutting rates
- FTSE100 weighed down by banks and miners
- Sports Direct puts Matches to enter administration
- Mondi agrees terms with DS Smith
- Tiger bids for Woods
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“Wall Street raced forward last night, with both the S&P 500 and NASDAQ indices rising strongly after Fed Chairman Jay Powell, in testimony to the Senate Banking Committee, said that the Fed was not far from having confidence that inflation was sustainably back to its 2% target. That would be the trigger for beginning to cut interest rates, bringing relief to mortgage holders and businesses across the US. Rate cuts are likely ‘at some point this year’ said Powell and traders promptly pushed bond yields lower at the short end of the curve in anticipation of rate cuts to follow.
Despite Wall Street’s strong performance last night, UK markets have opened a shade weaker, with the FTSE100 weighed down by banks and miners, both struggling to make progress this morning. BP and Shell however are amongst the leaders, buoyed by Brent crude which is trading higher at $83.60 this morning.
It’s not often that Mike Ashley, the founder of Sports Direct (now known as Frasers) throws in the towel, but today sees the announcement that MATCHES, a luxury online fashion platform that Sports Direct acquired in 2017, is to enter administration. Given Frasers’ mission to elevate the group further toward luxury, this has to be seen as a little awkward. But as the statement from Frasers explains, MATCHES had consistently failed to meet targets set for the business and made material losses. A quick visit to MATCHES website shows the business sells denim skirts for £880. The question here must surely be whether the business has gone under, despite selling denim skirts for £880 or has it gone bust because it charges £880 for denim skirts? Fashion was never an easy game to get right. Does it matter for Frasers though? Writing off £52m is never done with a smile, but the cash was spent long ago. Frasers remains committed to its drive upmarket. If battling to turn around MATCHES for the last six or seven years has taught the group lessons about what not to do in luxury retail, that £52m might just end up being money well spent.
Mondi announced a month ago that it was contemplating a bid for DS Smith, to bring two of Europe’s leading packaging businesses together. Last night the two companies announced they had agreed terms that will see the pair merge in an all-share deal where Mondi shareholders will end up owning 54% of the enlarged group and former DS Smith investors holding the balance. The deal represents a premium of around 33% to the DS Smith price before news of the talks broke in February. The groups say they can see substantial synergies from combining operations, but bizarrely at such a late stage in a deal’s progression, they have not yet quantified these synergies. That will come later, and in the meantime investors in both companies are left to figure out if they are going to be sufficient to merit DS Smith investors giving up control of the group and Mondi investors roughly halving their exposure to the assets they currently own. This does not look like a deal-making trend that is likely to catch on.
Investment bankers are showing their sense of humour. Deals always have code names until they are sprung onto the markets. Today we learn that Private Equity firm Pollen Street Capital are acquiring wealth manager Mattioli Woods. The moniker chosen by the dealmakers for the bid vehicle is Tiger Bidco. Clearly someone at Rothschilds spends too much time on the golf course. Meanwhile, the deal sees Mattioli Woods taken private at 804p, roughly a 33% premium to yesterday’s closing price, valuing the group at over £400m.”