BusinessCompany NewsWeekly market report (16 – 20 June)

Weekly market report (16 - 20 June)

The bid battle for water utility AWG, the former Anglian Water, has turned out to be a damp squib. The main bidding vehicle, a consortium put together by glamourous financier Robin Saunders, has pulled out of talks.

It’s possible that some other private equity bidders may take a tilt at the group, attracted by its asset base and reliable cashflows, but it may take a while. In the meantime, the shares are worth holding onto for the generous dividend.

Retail conglomerate Kingfisher has almost finished the process of dismantling itself, undoing the previous eighteen years of empire-building. The group will demerge its electricals division, comprising Comet in the UK, Darty in France, turning it into a separate London-listed company and effectively giving it away to existing Kingfisher shareholders. The transaction follows a similar demerger of Woolworths and the sale of the Superdrug chain, and will leave Kingfisher as a DIY business, comprising B&Q in the UK and Castorama in France. The City was somewhat underwhelmed by the details, with the outlook for Kesa, as the electricals offshoot will be called, particularly uncertain. All this financial engineering hasn’t come cheap, either; there were £97m of exceptional charges last year and there’ll be around £257m this year.

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Cordiant, the advertising group, has been rescued from bankruptcy by giant rival WPP. Part of the Saatchi empire until an acrimonious split in the late 1990s, Cordiant got itself into trouble by piling up debt to finance acquisitions. WPP is paying a pitiful £10m for the group, but will have to assume well over £200m of debt. Cordiant shares peaked at over 400p in 2000, but WPP’s bid values them at just 2.4p. Still, shareholders have little choice.

Abbey National provided a detailed update on trading this week. The gist was that while restructuring is going faster than expected, there’s still a long way to go, and that market conditions were as competitive as ever. The former building society got itself into a mess last year when it revealed that heavy investments in ‘junk’ bonds had gone wrong. Now it is going back to basics, focusing on mortgages and personal lending. Given the amount of time it’s going to take to get Abbey back on an even keel, the shares look overvalued.

Hamleys, the famous toy store, is to be taken over by Baugur, a retail investment specialist based in Iceland. The price seems very fair and shareholders would do well to accept, especially given the uncertain outlook for current trading. Baugur made its reputation with a massively profitable investment in Arcadia, sold to BHS owner Philip Green last year, and is also a major shareholder in Big Food Group (owners, appropriately enough, of the Iceland frozen food chain).

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