While there is plenty of news on the UK stock market for investors to digest, the big event of the day will be the European Central Bank’s (ECB) latest policy decision.
Expect to see a shift in strategy, with plans to start policy tightening, end bond purchases and begin laying the groundwork to raise interest rates later this year. The ECB has been behind the curve in responding to inflation and may find it hard to be too aggressive with rate hikes given a more fragile economy.
FirstGroup continues to block I Square Capital from getting on board, having now rejected the latest takeover bid. The idea that its offer is split into two is not attractive for shareholders as there is uncertainty over how much they would get, given one component is dependent on the outcome of various factors. Furthermore, FirstGroup doesn’t think the main cash component is generous enough.
Increasingly we’re seeing takeovers given the thumbs down unless the offer is all in cash and it’s pitched at a decent premium to the market price, to reflect the future potential of the business as well as the current state. So, the idea of saying to FirstGroup shareholders that there are lots of ‘ifs and buts’ attached to the offer won’t wash in the current environment.
Russ Mould, investment director at AJ Bell said: “If that’s not enough daily excitement in the world of M&A, along comes a bid for healthcare services group, Mediclinic. While this is an all-cash proposal, albeit including a recently declared dividend, the board say the price is very wide of the mark and the proposal has been rejected.
“This may not be the last we’ve heard from Mediclinic’s suitors, Remgro and MSC, as takeovers often involve putting a starting number on the table and testing the water to see how it goes down. Any rejection can quickly be followed by a higher bid if the suitor(s) really wants the target business.
“When AO declared ‘AO, let’s go’, one would have presumed it was talking about going places, but that’s not quite the case. AO has thrown in the towel with its struggling German business, ending a long period of pain.
“For years it has declared ambitions to replicate its UK success overseas, providing big growth opportunities. But a highly competitive marketplace has defeated AO and it’s now shutting up shop in Germany.
“AO’s future now depends on greater success in the UK, which will be very hard to achieve. Its proposition is appealing to consumers – competitive prices and good service levels. But the problem is that it makes such a tiny margin that simply shifting boxes from A to B will not create a business empire for AO. It is going to need to pull a bigger rabbit out of the hat to thrive.
“Life is also getting harder for DFS as consumers watch their spending more closely. Big ticket items like sofas were always going to be the first place where people think twice about handing over the cash. If you’re under financial pressure, the idea of paying more than £1,000 for something is a big commitment. If bills are racing higher, it’s an easy decision to hold off from getting a new sofa or armchair. Therefore, DFS will have to sit tight and ride out a difficult period for the business.”