A string of mega deals is set to provide welcome relief to the City after a rocky start to the year saw £85bn wiped off the value of the UK’s biggest firms in the first trading week of 2016.
London-listed pharmaceutical giant Shire is on the verge of inking a £22bn deal with US rival Baxalta, with the combined company forecast to pull in over £13bn in sales by 2020.
Despite oil prices hitting 11-year lows of under $33 per barrel last week, Royal Dutch Shell is determined to push ahead with its acquisition of BG Group. Chief executive Ben van Beurden insisted over the weekend that the deal will go ahead despite shareholder warnings that the low oil price could derail the deal.
Russ Mould, investment director at AJ Bell, told City A.M.: “It would not be a surprise to see more UK-listed firms attract bids from predators in 2016, as the early-year falls in both equity valuations and sterling could tempt buyers into action. [And last year] over 600 new issues from UK-listed firms raised more than £24bn in fresh equity on the London Stock Exchange’s main market alone. London is a good place to do business, even if the overall market backdrop is difficult.”
The pound has slipped to lows against the dollar not seen since the 2010 General Election due to the fresh oil price slump, Chinese stock market volatility and expectations that the Bank of England will keep stimulating the economy with ultra-low interest rates throughout 2016.
However, adding further impetus to the deal pipeline, supermarket Sainsbury’s is expected to make another bid for Argos owner Home Retail Group after news of its November takeover attempt stunned the City. An offer could come as soon as this week.
And London First’s director of strategy John Dickie believes 2016 will see more activity. “Market turmoil coming from China isn’t a good view of the overall London and UK economy,” he said yesterday.
“A lot of the coming deals involve companies operating extensively outside of the UK. The rules involving these big companies in the UK gives a great advantage to London and will attract further investment. There will be a boost given to the stock market as a result.”
Meanwhile, BT’s acquisition of mobile network EE is expected to be given the go-ahead by the regulator as soon as this week. The deal, worth £12.5bn, will unite the country’s biggest broadband provider with its most powerful mobile operator. The expected tie-ups follow a record year for UK mergers and acquisitions in 2015, as $516.5bn worth of deals were done, up 90 per cent from 2014, according to EY.
City stalwart and market commentator at Panmure Gordon David Buik is optimistic about the year ahead. “London is stooped in success from M&A activity, bond raising activity, capital markets and the finance of foreign trade,” Buik said. “We are the best – simple as that!”