TheChek News Flow

Oilfield service companies eye opportunities in overlap from £2.2bn merger

Rival oilfield service companies are circling Wood Group and Amec Foster Wheeler with the aim of picking up assets and contracts likely to be shed by the UK pair as a result of their £2.2bn merger.

SNC-Lavalin of Canada and Petrofac of the UK are among those eyeing opportunities among the fallout from last week’s agreed deal to bring together the two biggest service providers to oil and gas companies in the North Sea.

Wood and Amec may be forced by regulators to sell some overlapping assets to overcome competition concerns, according to industry executives, and some customers served by both companies are likely to look for alternative suppliers to limit dependence on the merged group.

“They are the number one and two North Sea players so there will be competition issues,” said one industry leader, adding that his oilfield service company had already been approached by two large international oil groups keen to diversify their supply chain beyond Wood and Amec.

“Regulators may force them to sell assets but customers will not wait for someone in Brussels to tell them who they can do business with,” said the executive. “They will make up their own minds about how much business they want with one company.”

Wood and Amec provide services such as construction and engineering of oil and gas infrastructure and maintenance of existing facilities, and Amec also has wider operations in nuclear power, infrastructure and mining.

Like all oilfield service providers, both groups have been hit hard by the downturn in investment by oil and gas companies since crude prices crashed in 2014.

Montreal-based SNC has a similar range of businesses to Amec and is run by Neil Bruce, who was chief operating officer of the UK company before moving to Canada in 2015. This connection has raised questions over whether SNC might launch a counterbid for Amec against Wood’s recommended all-share offer.

People with knowledge of its thinking said the group was not interested in buying all of Amec but was on the lookout for assets that might be sold by the UK company before or after it is absorbed by Wood. In particular, SNC is interested in the nuclear business that Amec had already put up for sale before agreeing its deal with Wood.

Petrofac, which is set to be usurped by the enlarged Wood as the biggest UK-listed oilfield services group by revenue, declined to comment on whether it might be tempted to launch a rival bid for Amec. Analysts said the chances of a counter-offer looked slim.

“I don’t think Petrofac has got the firepower . . .[and] it has a raft of its own issues,” said Ashley Kelty, analyst at Cenkos Securities. “Would you expect Halliburton or Schlumberger to come in? Possibly, but I think probably unlikely for competition reasons.”

Wood and Amec both have operations around the world but there is a particular overlap in the North Sea. Société Générale believes the combined group would command 50-60 per cent of the maintenance, modifications and operations market in the region.

One person close to the deal said Wood Group may have to sell its North Sea business, or that of Amec, to alleviate competition concerns. But another source suggested there could be a “managed migration” of contracts to alternative providers.

Wood offered 0.75 of new shares for each Amec share, which were valued at £5.64 each — a premium of 15.3 per cent to the closing price before the deal’s announcement. Wood ended last week down more than 4 per cent at 721p while Amec shares were 1.5 per cent higher on the week at 496.6p. Analysts at Exane BNP Paribas said the proposed takeover had “diluted or overturned” the appeal of Wood for shareholders who favoured its traditionally “conservative” strategy.

Wood Group declined to comment.

Activist fund threatens sue individual Safran board members

One of Europe’s largest activist hedge funds has stepped up its campaign to block French engine maker Safran’s €8.5bn takeover bid for rival Zodiac Aerospace, threatening to sue every Safran board member personally if shareholders interests are damaged.

The Children’s Investment Fund wrote a letter to the Safran board saying that if the deal leads to a loss of value for Safran “we would have no choice but to seek to recover the damage suffered by the company from you personally”.

TCI last month started a campaign to block the Zodiac deal, which would create the world’s third-largest aerospace supplier by revenue, but this is the first time they have threatened legal action against individual Safran board members. TCI, which manages $14bn of assets, owned 4.1 per cent of Safran in February.

A spokesperson for Safran declined to comment on the letter, which was sent on March 17 and has been seen by the Financial Times.

The escalation comes as Zodiac, which makes seats, galleys and toilets for the aerospace industry, last week blindsided Safran management and investors by reporting a profit warning, its 10th in three years.

This came just two months after Safran management, on announcing the deal in January, said Zodiac had put its past production difficulties behind it.

“We believe, based on what we have seen, what we have discussed with them that, yes, they are at the bottom of their performance,” said Philippe Petitcolin, chief executive of Safran, in January.

Last week Zodiac said that operating profit would fall 10 per cent in the fiscal year ending in August, rather than the forecast increase of as much as 20 per cent. Zodiac Aerospace last year reported consolidated sales of €5.2bn and current operating income of €269.6m.

Shares in Zodiac fell 16 per cent following the warning to €22.99, below the €23.30 share price the day before the Safran deal was announced and short of the €29.47 per share cash bid price.

Following the news, Safran said that Zodiac’s warning “reflects new developments compared with the information available” in January, and that it could review the terms of the deal.

People close to Safran said the bid price could be cut or the deal could even be scrapped completely.

The profit warning prompted TCI to renew its call on Safran to drop its bid for the cabin interiors and seat group.

“In light of Zodiac’s catastrophic business update Safran should immediately cancel its proposed takeover of Zodiac,” said Sir Christopher Hohn, chief executive of TCI, in a letter to Safran management last week.

Many analysts, including Andy Chambers at Edison Investment Research, say there is a strong business case for Safran to acquire Zodiac, giving it increased exposure to the booming civil aerospace sector. However, this is predicated on resolving production problems which have led to delays in aircraft deliveries and sparked sharp criticism from customers such as Airbus.

Others warned that the deal could distract Safran at a time when it is facing its biggest industrial challenge — increasing production of its new Leap jet engine that will be used on next generation versions of narrow-body aircraft made by Boeing and Airbus.

Media group chief alleges Italian rival gave ‘wrong’ information when link-up pursued

The chief executive of Vivendi has accused Italian group Mediaset of providing “misleading” information during negotiations over a tie-up last year, upping the stakes in the acrimonious stand-off between former Italian premier Silvio Berlusconi and French billionaire Vincent Bolloré.

Tensions between Mr Berlusconi, who founded and owns 40 per cent of Mediaset, and Vivendi chairman Mr Bolloré have been rising ever since Vivendi’s €880m deal to acquire 3.5 per cent of the Italian group and all of pay-TV channel Mediaset Premium fell apart in July. 

The move — a feature of a wider agreement in which Mediaset would take 3.5 per cent of Vivendi — was part of the French group’s strategy to build a southern European media powerhouse to take on Sky and combat the growing threat from new global online streaming services such as Netflix.

Despite reports in Italy of a possible peace deal between the two parties, Arnaud de Puyfontaine, Vivendi’s chief executive, told the Financial Times that attempts to find a resolution had so far failed. He suggested that Vivendi received “wrong” information during talks about the deal.

In remarks echoing comments Mr De Puyfontaine made to the FT last August, when he suggested Vivendi had been sold a “Ferrari” which turned out to be a “Fiat Punto”, he said: “We signed an agreement in April 2016. We made it very clear that the nature of the information provided to us was misleading and we tried to find a way to get out of what was a kind of situation in which we were not happy.”

Mediaset responded to Mr De Puyfontaine’s comments by saying the French company had signed the deal after one month of due diligence.

“They had plenty of time to check Mediaset Premium fundamental financial and commercial data,” the company said. “On the basis of this due diligence they were able to agree a price . . . and [there were] only three specific reasons to refuse the closing. Not one of these reasons occurred and therefore Vivendi started to manipulate the truth creating huge damages to Mediaset”.

On the question of agreeing a deal with Mr Berlusconi, Mr De Puyfontaine said: “Unfortunately circumstances have proved that the fair approach and the willingness to find [a solution] have been proved wrong by the events.”

Apart from a brief meeting between Mr De Puyfontaine and Mr Berlusconi’s son Pier Silvio in December, there have been no discussions between the two groups since July 25, according to one person with knowledge of the dispute.

“There is no sign of a foreseeable agreement,” the person added.

Since Mr Bolloré backed out of the deal, the French corporate raider has reacted by building the second-biggest stake in Mediaset at 30 per cent, behind Mr Berlusconi’s Fininvest, which holds 40 per cent.

In February, it emerged that Milan prosecutors were investigating volatility in Mediaset’s share price following the collapse of the deal with Vivendi. Mr De Puyfontaine, who is reported to be on the list of names being investigated, insisted the claims were “abusive and unfounded”.

Asked if he was confident he would be cleared, he replied: “I am, I am, I am. Is there something of substance to what I have been alleged? The answer is no.”

Francois Godard, an analyst for Enders in Paris, said he would “not be surprised” if Mediaset had been “too optimistic about its assets”, when the Italian group struck its agreement with Vivendi last April.

“They could have said a lot of things,” said Mr Godard. “But on the other hand I do not think Bolloré is a person who believes everything he is told.”

Despite the fall out between Mr Bolloré and Mr Berlusconi, Mr De Puyfontaine said Vivendi would not be deterred from its strategy of Italian expansion — part of a wider aim for the music, TV, film and games group to become one of the world’s most powerful media conglomerates.

“Italy is very special,” said Mr De Puyfontaine. “The vision of Vivendi with a strong foothold in Southern Europe remains.”

Central to that plan is to create partnerships with telecoms companies, the Vivendi chief executive said, insisting it was “not my intention” to sell off the French company’s 24.9 per cent stake in Telecom Italia to pursue Mediaset.

But some analysts and investors worry that having streamlined the company by selling down assets over the past few years, Mr Bolloré has embarked on a fresh spending spree, snapping up a majority stake in video games producer Gameloft as well as a 24.9 per cent shareholding in Telecom Italia in the past 12 months.

While overall revenues for the group in 2016 were largely flat at €10.8bn, earnings before interest and tax were down 2.9 per cent. Universal Music was the best performer, raising revenues by 4.4 per cent, as it benefited from a 58 per cent increase in streaming revenues. 

But French pay TV channel Canal Plus saw a 4.2 per cent drop in revenues last year. While Mr De Puyfontaine says the company has taken drastic steps to save the “sick child” of the Vivendi family, analysts say its strategy is confusing.

“Over the course of time, Vivendi has done the hokey cokey,” said Thomas Singlehurst, an analyst at Citi. “At one point they were out of telcos and now they are back in. They were out of games and now back in. You can understand the confusion among investors.”

Veteran banker to take helm at state-controlled Italian defence and aerospace group

Veteran banker Alessandro Profumo is set to become the next chief executive of state-controlled Italian defence and aerospace group Leonardo in a “spoils system” shake-up of the top jobs at some of Italy’s largest companies.

Along with Mr Profumo, the former chief executive of UniCredit and chairman of Monte dei Paschi di Siena who has no experience in the defence industry, new bosses are set to take over at Italy’s national post office, Poste Italiane.

The review every three years of the top positions at Italy’s largest state-owned companies is a “spoils system” where seats are handed out to executives considered close to or supportive of the government.

Matteo Del Fante, a former JPMorgan banker close to former prime minister Matteo Renzi, has been proposed by the Treasury as chief executive of Poste Italiane, taking the place of its current well-regarded boss, Francesco Caio. Bianca Maria Farina, one of Italy’s most senior women executives who sits on the board of the Vatican’s financial regulator, will be the new chairman of the post office.

The appointment of Mr Profumo at the company formerly known as Finmeccanica is seen as a promotion for the veteran banker with longstanding ties to Italy’s centre left. Mr Profumo made an inglorious exit from UniCredit in 2010 but salvaged his reputation by agreeing to be chairman of the Italian bank Monte dei Paschi as it teetered on the brink of collapse.

He replaces Mauro Moretti who was put out of the running for another term after he was convicted and sentenced in January to seven years in prison for his role in a rail crash in 2009 that killed 32 people in the Tuscan town of Viareggio. Mr Moretti is appealing against the conviction.

Remaining in their jobs are Eni’s incumbent chief executive, Claudio Descalzi, who is facing trial over corruption charges and chairman Emma Marcegaglia, and Francesco Starace and Patrizia Grieco, incumbent chief executive and chairman, respectively, at Enel. Mr Descalzi has denied wrongdoing.

The nominations made by Italy’s Treasury on Saturday are still to be confirmed by investor meetings in the coming weeks, but given the Italian state’s position as majority shareholder this is a formality.

This year’s round of appointments was closely watched for signs of the influence still held by former prime minister Matteo Renzi who resigned as premier in December after a devastating referendum loss.

The promotion of Mr Del Fante to Poste Italiane, replacing Mr Caio, a former chief executive of Avio who had successfully taken the post office public, was seen as a sign of the ongoing influence of the former prime minister on the appointment system. Mr Del Fante’s previous role as chief executive of state energy grid operator, Terna, is expected to be taken by former Enel executive, Luigi Ferraris.

The Five Star Movement, a populist party running neck and neck with the left in opinion polls, decried what it perceived as Mr Renzi’s continuing influence.

“Renzi managed the nominations and put his own men in the jobs. This is intolerable and dangerous,” Five Star founder, Beppe Grillo, said.

The nominations were also controversial for Mr Profumo’s promotion and the exit of Mr Caio, who had successfully taken the Poste Italiane public two years ago and increased net profit by 13 per cent last year. Mr Caio told Italian media that “in a normal country” he would have been reconfirmed for such results. Mr Caio was widely seen as having irritated Mr Renzi by refusing to use the post office to rescue Italy’s ailing bank Monte Paschi last year and avoid a state bailout, say people familiar with the matter.

Weekly Update

Dow +0.06% S&P +0.24% Nasdaq +0.67% Russell Mexico +3.17% (+6.04% in $) Brazil -0.72% (+0.90% in $) Nikkei -0.42% (+1.42% in $) Hang Seng +3.15% CSI +0.52% Shanghai +0.77% EuroStoxx +0.94% (+1.56% in $) FTSE +1.12% (+3.06% in $) CAC +0.72% (+1.34% in $) Dax+1.10% (+1.72% in$) Ibex +2.39% MIB +2.12% SMI +0.33% (+1.61% in $)

While German Chancellor Merkel and President Trump met at the White House to discuss their differences, the stock market continued to post gains on Friday, and closed up on the week. Major indices had faltered when the week began, as investors keep looking for promised fiscal policy implementation to buy at higher prices. While most economic data this week was strong and better than expected, that alone was not enough to send equities to new highs. For the week the DJIA gained 0.1%, the S&P rose 0.2%, and the Nasdaq added 0.7%. Wednesday's FOMC meeting statement sent stock markets rallying again as the Fed framed a 25 basis point hike as a vote of confidence in the economy and reiterated it would raise rates gradually. The committee noted inflation is near the 2% target, but that it may also be willing to let inflation exceed that level for a while. Signals from Chair Yellen that interest rate normalization wouldn't happen faster than the economy could handle reassured buyers, as the market took on more risk, sending all major indices higher for the day. Those perceived reassurances on the speed of hikes didn't help bond prices, however, as fixed-income products sold off after the statement, reversing their rise from the beginning of the week.

Macro :

- China, U.S. Agree Korea Tensions at Dangerous Level: Tillerson

- U.S. Banks Fall to February Lows as Market Reverses Gains

- G-20 Nations Renew Commitment to Global Bank-Capital Overhaul

- Dubai Stocks Decline Most in Mideast as Emaar Falls: Inside EM

Keep an eye on :

- ADS GY : Adidas Sues Asics Over Patents for Fitness Tracking

- AZA IM : Alitalia’s Bank Investors in Talks on State Guarantee: Corriere

- AKZA NA : Elliott Said to Urge Akzo Nobel to Engage With PPG in Deal Talks

- AKZA NA : AkzoNobel could eye large-scale takeover or series of smaller acquisitions - telegraaf.nl

- ATC NA : Teads in talks with News Corp after rejecting offer from Altice

- AMGN US : Amgen’s Repatha Doesn’t Hurt Mental Ability, Study Shows

- AAL LN : Volcan Plans to Raise $2.4b Via Bond Sale for Anglo Stake: ET

- AAPL US : Apple’s Cook: Worst Thing We Can Do Is Say Globalization Bad

- MT NA : ArcelorMittal, Marcegaglia Said Offering EU1.6b for Ilva:Reuters

- ARYN VX : Aryzta to Cut Debt by EU1B, Chairman Tells Sunday Times

- AZN LN : AstraZeneca May Reduce U.K. Drug Research Program: Sunday Times

- BMPS IM : ECB Agrees to Paschi Extended Restructuring Plan: Messaggero

- BVN LN : Bovis bidder Redrow weighs revised offer; Galliard decides against bid - reports

- BLVN LN : BowLeven Chairman Seeking Offers for Company, Sunday Times Says

- KO US : Indian State Bans Sale of Coca-Cola Zero at McDonald’s: Times

- CSGN VX : Credit Suisse Said to Decide in April on Swiss Bank IPO: Reuters

- DBK GY : Deutsche Bank Review by ECB Shows Risk Management Weakness: Sole

- DBK GY : Deutsche Bank TERP ~EU15.79 Based on March 17 Price, Sale Terms

- DIS US : Disney Sees ‘Beauty and the Beast’ 3-Day Sales of $155m-$165m

- ELI BB : Elia Rises, Sofina Declines Ahead of BEL20 Index Reshuffle

- ENI IM : Eni CEO at Photovoltaic Plant Foundation Stone Laying in Algeria

- GXI GY : Gerresheimer Makes Preliminary Offer for Bormioli Rocco: Il Sole

- GBLB BB : GBL Raises Dividend 2.4%; Asset Rotation Cuts Cash Earnings 4.6%

- GKN LN : GKN May Issue GBP250m Bonds to Plug Pension Gap: Sunday Times

- LDO IM : Profumo Named Leonardo CEO as Italy Reshuffles State-Owned Firms

- MONC IM : Moncler to Focus on Commercial Network, Strengthen Retail: Sole

- PARG SW : Pargesa Swings to Loss on Engie Disposal, GBL Impairement

- RIO LN : Rio CEO Says Key Iron Ore Uncertainty Is Chinese Capacity: CNBC

- SFQ GY : SAF-Holland Looking at 1-2 Takeover Targets, Borghardt Tells BZ

- SIE GY : Siemens Boosts Commitment to U.S. After Meeting With Trump

- SNAP US : Snap’s Inclusion in FTSE Indexes Said Opposed by U.K. Investors

- SL/ LN : Standard Life CEO Defends Aberdeen Deal in Telegraph Interview

- SFM US : Sprout Farmers Market Climbs for Second Day; Upside Calls Active

- UHR VX : Swatch’s Tissot Aims to Double Stores in Japan: Nikkei

- SREN VX : Swiss Re rumoured to be eyeing UK acquisitions

- TESB BB : Picanol Unit Buys Additional EU0.39m of Tessenderlo Chemie Stock

- UBSG VX : UBS ‘Very Pessimistic’ About Settling Tax Case in France: JDD

- VIV FP : Vivendi CEO to Speak to Italy’s Agcom on March 23: Corriere

- VIV FP : Vivendi CEO Says Mediaset Misled Company During Talks: FT

- VOw3 GY : Volkswagen Seeks U.S. Market Share Gains: Automobilwoche

- VOW3 GY : Piech Sale of Porsche Stake May Be Finalized in April: Bild