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Eurozonesdebt talksfail as Italynears crisisBY JULIET SAMUEL

EUROZONE

NEWS CORP PUTSSKY BID ON HOLD

www.cityam.comIssue 1,422 Tuesday 12 July 2011 FREE

BUSINESS WITH PERSONALITY

Certified Distribution

02/05/11 till 29/05/11 is 103,467

NEWS CORP yesterday made theshock decision to effectively put its

bid for BSkyB on ice for up to a year.Rupert Murdochs firm withdrew

concessions made to the mediawatchdog over the takeover, trigger-ing a Competition Commissionenquiry. The dramatic U-turn, whichcentred around its agreement tohive off Sky News, was announcedminutes before culture minister

Jeremy Hunt addressed the house ofcommons.

Sources close to News Corp saidthe move was intended to depoliti-cise the bid process and give thefirm a clearer timetable of events.

It seems to have been triggered byculture secretary Jeremy Hunts deci-sion to request new advice fromOfcom most pertinently whetherhe should trust News Corps assur-ances over Sky News.

The announcement was made aspolitical pressure on News Corpreached fever pitch. Deputy primeminister Nick Clegg and Labourleader Ed Miliband both called for

Murdoch to abandon his bid for Skyand Clegg added his voice to those

calling for News International bossRebekah Brooks head.

Even David Cameron, whoseclose relationship with NewsInternational has come underscrutiny in recent days, said that ifhe were in charge of News Corp he

would focus on cleaning it uprather than the next corporate

move. The dramatic developments,

which sent BSkyBs shares as low as699p yesterday, came amid yetanother day of damningaccusations against the now-defunct News of the World and itsstablemates including the Sunday

Times.Gordon Brown made the explo-

sive claim that News International

journalists attempted to hack hisphone; used so-called blagging

calls to try to extract informationabout his personal bank account;accessed confidential legal docu-ments; and even looked at his fami-lys medical records includingthose of his seriously ill son.

Private investigators, includingconvicted fraudster Glenn Mulcaire,are thought to have targeted Brown

over a period of more than 10 years.MORE: P6

CompetitionCommission probe tolast up to a year

Gordon Brownsays sick son wastarget ofNews Int

l Rupert Murdoch put his BSkyBbid on hold yesterday as he facedyet another day of shocking alle-gations. Picture: REUTERS

BY STEVE DINNEEN

MEDIA

CRUNCH talks among Eurozone min-isters broke down in failure yester-

day, leaving a much-trumpeted finaldeadline for an agreement on a sec-ond Greek bailout to pass with nosign of a deal.

The Eurozones inability to thrashout a new package leaves the regionexposed to the growing threat of con-tagion, which saw the interest onSpanish 10-year debt jump 30 basispoints to over six per cent and 10-

year yields on Italian debt shoot up40 per cent to break through 5.7 percent yesterday. Seven per cent is seenas a key threshold at which Romesdebt forecast to reach 120 per centof GDP will become unaffordable.

In a statement yesterday night,Eurogroup ministers reaffirmedtheir absolute commitment to safe-guard financial stability in the euroarea.

The talks foundered after twoweeks in which France and Germanyattempted to cobble together a dealthat would share the costs ofGreeces new rescue, likely to be

worth at least 100bn, with the pri-vate sector.

But a French proposal to get banksto shoulder some of the pain wasdealt a fatal blow by ratingsagencies, which said it would likelyamount to a form of credit eventor default.

The impasse culminated in a pressconference last week at which ECBpresident Jean-Claude Trichet wouldsay only: There will be no default.

Markets spent the day in panicmode under the cloud of Italian con-tagion. The spread between 10-yearItalian debt and bunds reached threeper cent, while investors fled thecountrys major lenders. Unicreditplunged 6.6 per cent and Intesa

Sanpaolo lost 7.3 per cent.ALLISTER HEATH: P2CITY VIEWS: P5

ANALYSIS l British Sky Broadcasting

$

4 Jul 5 Jul 6 Jul 7 Jul 8 Jul 11 Jul

850

800

750

700

715.5011 Jul$

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News2 CITYA.M. 12 JULY 2011

MPs agree toup IMF loansTHE UK government last night votedthrough a proposal to make extraloans worth around 9bn available tothe International Monetary Fund(IMF).

MPs won a Commons vote by amajority of 28, authorising theTreasury to make the additional loans,despite opposition from a number ofLabour and Conservative MPs.

The Treasury said there was littlefinancial risk as the IMF has neverfailed to repay a loan made by a con-tributing country. They also said theloan would not impact borrowing lev-els it counts as a as an exchange of afinancial asset, on which interest ispaid to the UK.

The parliamentary approval by274 votes to 246 means that the max-

imum amount of British money theIMF can borrow will increase from10.7bn to 20.15bn. The move comesafter it was agreed in April 2009 at theG20 London summit that the IMFwould require extra resources to meetthe needs of its member countries dur-ing the ongoing global financial crisis.The Treasury said this was agreed wellbefore the Greek debt crisis.

The UK has so far contributed1.2bn to the original bailout ofGreece, while the cost of rescuing theIrish and Portuguese governments hasexceeded 11bn.

BYKASMIRA JEFFORD

POLITICS

Eurozone crisis is set to engulf Italy

SLOWLY but surely, the Eurozone cri-sis is escalating. There is no longer arisk of contagion it is already here,big time.

Forget about Greece and evenPortugal. The European and UKeconomies would just about survivetheir default. The real nightmarewould be if Italy or Spain were also tohit the rocks. The impact would be sohuge and the amount of debt writ-ten off so large that it would guaran-tee a sharp Europe-wide recession,with the UK badly hit. It would be acase of 2008-9 all over again, albeit at a

time when governments are alreadymaxed out when it comes to their bor-rowing capacity.

Italys national output is almost thesame size as the UKs with a GDP in

2010 of $2 trillion. Spains, whilesmaller at $1.4 trillion, remains mas-sive. Both are central to the anti-demo-cratic project to build an ever morecentralised, politically unified Europe;Italy especially so given that it is afounder member and signatory to theTreaty of Rome. If either of those wereto quit the single currency let aloneleave the EU the whole projectwould implode.

As the Centre for Economics andBusiness Research points out, theproblems facing both economies aredifferent. Italy has a (relatively) smallbudget deficit of 4.5 per cent of GDP in2010, but a large debt of 129 per centof GDP. Property debt isnt a majorproblem. But Prime Minister SilvioBerlusconi has been a disaster: theeconomy has barely grown, year afteryear; high costs and a failure to boost

productivity have made the countrysexports deeply uncompetitive; and theentire political establishment lacksthe willpower to do anything about it.There is simply no realistic way that

growth can be kick-started, somethingthat is also true of Greece.Spain has been more successful. But

it should have never have joined thesingle currency. Its decision to do someant that its interest rates tumbled(when it ditched the peseta and adopt-ed the much more credible, low infla-tion euro) triggering a massive houseprice bubble and a constructionboom, leaving 1.5m unsold properties.Its national debt, while too high at 73per cent of GDP, isnt yet at crisis level the issue is the deficit, which hit 9.2per cent of GDP in 2010. This is push-ing up the national debt at a danger-ously fast rate, just like in the UK,Greece and the US. The biggest prob-lem of all, however, is that banksextended large loans against property and the house price crash meansthat the financial system could be fac-

ing massive losses. Fortunately,Spanish banks engaged in pro-cyclicalprovisioning, so they do have reservesupon which to draw. Externalobservers dont have a good grasp of

the real situation, however.There are two options for Spain andItaly. The first is to tighten their belts,German-style, cut costs, pay the debtback and price themselves back intocompetitiveness. The CEBR calculatesthat this would mean a further cut inliving standards of 13 per cent forSpain and 19 per cent for Italy. There isa chance that Spain might eventuallydo this but no hope for Italy. The sec-ond option is to default or quit theeuro or both. Those of us whoopposed the euro in the late 1990s andwho warned that it would end in tearshave been vindicated tragically, how-ever, it looks as if the whole world willsoon be paying a terrible price for themegalomania of Europes economical-ly illiterate establishment.

[email protected] me on Twitter: @allisterheath

THE BANK of England is struggling tohold on to staff despite its generousremuneration and pension schemes, itsaid in its annual report last night.

Governor Mervyn King, whose latestannual earnings totalled 308,252,recently defended the Banks policy ofkeeping pensions tied to the retailprice index (RPI) rather than the typi-cally-lower consumer price index (CPI).

Over 1m in total was added to the

pension pots of deputy governorsCharles Bean and Paul Tucker in theyear to February, the report revealed.

Yet chairman David Lees said in hisstatement: a particular concern overthe past year has been ensuring theBank has and retains the numbers andparticularly the quality of the staff itneeds. The government sector-widepay freeze has made the job no easi-er, Lees said. The Bank lost 284employees in the year to February, yetrecruited 220 more.

New inflation figures are out today.

BY JULIAN HARRIS

BANK OF ENGLAND

Bank says its losing staffGovernor King was paid 308,252 in the last year Picture: Micha Theiner/City AM

NEWS | IN BRIEF

Cooper may drop bid for LairdShares in UK electronics manufacturerLaird fell almost nine per cent yesterdayafter its US suitor Cooper Industriesthreatened to walk away from mergertalks rather than launch a sweetenedoffer. Cooper said it may consider ahigher bid than the 493m offer it

made last month if due diligence sup-ported a higher price, but said Laird hasrefused to allow it access to conductthe due diligence. Shares in Laird have

jumped nearly 50 per cent since thetakeover announcement in June.

Strauss-Kahn court date delayedNew York prosecutors and the lawyersfor Dominique Strauss-Kahn haveagreed to postpone the next court datein the sexual assault case for two weekto give both sides more time to investi-gate. The delay to 1 August from 18July was announced in a letter to the

judge yesterday. The move came asdefense lawyers again urged a dismissalof the charges a possibility that hasbeen anticipated since prosecutorsrevealed problems with the credibilityof his accuser, a 32-year-old immigrantfrom Guinea.

EDITORS LETTER

ALLISTER HEATH

Editorial StatementThis newspaper adheres to the system of

self-regulation overseen by the Press ComplaintsCommission. The PCC takes complaints about theeditorial content of publications under the EditorsCode of Practice, a copy of which can be found atwww.pcc.org.uk

Printed by Newsfax International,Beam Reach 5 Business Park,Marsh Way, Rainham, Essex, RM13 8RS

Distribution helplineIf you have any comments about the distributionof City A.M. Please ring 0207 015 1230, or [email protected]

Osborne told the EU inApril there would be nomore cash from the UKfor Eurozone bailoutsafter Portugal deal

7th Floor, Centurion House,24 Monument Street, London, EC3R 8AJTel: 020 7015 1200 Fax: 020 7283 5334Email: [email protected] www.cityam.com

EditorialEditor Allister HeathDeputy Editor David HellierNews Editor David CrowActing Night Editor Marion DakersBusiness Features Editor Marc SidwellLifestyle Editor Zoe StrimpelSports Editor Frank DalleresArt Director Craig GaymerPictures Alice HeppleCommercialSales Director Jeremy SlatteryCommercial Director Harry Owen

Head of Distribution Nick Owen

INSURERS TO FUND POLICE TEAM INFRAUD CRACKDOWNInsurers are to spend 8.2m funding aspecialist police unit that will be ded-icated to cracking down on the grow-ing problem of insurance fraud,which costs an estimated 2bn a year. A new unit of 35 specialist frauddetectives and police support staffwill be operated by the City of Londonpolices economic crime directorate.

GLOBAL SWITCH IN 1BN MOVE TOEXPANDGlobal Switch, the data centre opera-tor owned by billionaire brothersDavid and Simon Reuben, is investing1bn in the expansion of its networkacross the world amid continued talkof a future public listing for thegroup. The group is embarking on adevelopment programme that will

add 1.1m sq ft of additional space by2013, at a cost of about 1bn.

TELECOMS GROUPS SEEK SHAKE-UP OFCHARGING MODELS

European telecoms operators shouldbe free to develop new business mod-els, including the controversial ideaof charging online content providersfor delivering their material to con-sumers, a report is expected to saytomorrow. The report responds tofears that broadband speed targetswill be missed because of inadequateinvestment by telecoms operators.

DEALMAKER IN $1.7BN RAISING FORCHINA FUNDShan Weijian, one of private equitysmost successful dealmakers in Asia,has raised more than $1.7bn for anew fund focused on China at a timeof increased scepticism about suchinvestments in the country. Theannouncement of the first close ofPAG Asia I is a huge personal endorse-ment for Mr Shan, formerly of TPGand associated with some of the most

lucrative deals completed in Asia bythe US private equity group.

BRING MORE WOMEN ON BOARD ORWELL VOTE YOU OFF, DIRECTORS AREWARNEDSome of the Citys most powerfulfund managers are threatening tooust company directors who do not work hard enough to put morewomen in FTSE 100 boardrooms. Theinstitutional investors taking a toughnew line on diversity include Aberdeen Asset Management,Standard Life Investments, F&C AssetManagement and Aviva Investors.

ASSANGE CELEBRATES BIRTHDAY ONEVE OF APPEALJulian Assange will today fight the lat-est round in his legal battle to avoidextradition to Sweden on charges ofsexual assault. The Wikileaks foundermay begin his two-day High Courtappeal with a hangover, however,

after celebrating his 40th birthday onSunday with a lavish party.

UK MANUFACTURERS FOCUS ONEXPORTS AS ECONOMY STRUGGLESManufacturers of parts and materialsfor the construction industry areincreasingly focusing on exportingtheir products because of the chal-lenging economic conditions in theUK. According to a new survey by theConstruction Products Association(CPA), the number of manufacturersexporting goods increased by 18 percent in the second quarter compared with the first three months of theyear.

DAILY STAR BENEFITS FROM NEWS OFTHE WORLDS DEMISEThe News of the World added moresales than any other newspaper onSunday, but Richard Desmonds DailyStar Sunday was the surprise winneramong its rivals in percentage terms.

The Daily Star increased circulationby about 25 per cent at the weekend.

MONSANTO, SINOCHEM IN DEALTALKSChemicals conglomerate Sinochemis in advanced discussions withMonsanto to deepen their ties signifi-cantly, people familiar with the dis-cussions said, an important sign ofChinas growing appetite for US cropsand biotechnology.

RISKIER LOANS MAKE A COMEBACK,AS PRIVATE FIRMS TAKE THE FIELDAfter years as the lending marketsundesirables, aspiring home buyerswith less-than-stellar credit are beingoffered home loans againwith someof the same conditions and catchescritics say tripped up subprime bor-rowers five years ago. According toanalysts, a handful of private invest-ment firms have started makinghome loans to borrowers who fail to

meet banks requirements, which gottighter post-crash.

WHAT THE OTHER PAPERS SAY THIS MORNING

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VIRGIN Money has submitted a bid forsome 600 branches being sold byLloyds, but could drop the offer after itsees Northern Rocks sales documentthis week, City A.M. has learned.

The information memorandumdetailing the Rock assets on sale is dueimminently, according to a sourcefamiliar with the situation, afterGeorge Osborne kicked off the auctionin a speech at Mansion House lastmonth.

Virgin is understood to think that

the smaller Rock sale could be a betterfit, because it already has an IT plat-form and integrated payments systemin place.

If so, the governments decision topursue the Rocks sale now could nar-row what is already a small field ofcredible bidders for the Lloyds auction.

Yesterdays deadline for initial bidson the branches also saw Lord LevenesNBNK Investments table an offer, CityA.M. understands, with Lloyds set tocompile a shortlist of bidders by the

end of the month.However, the sale could yet run into

other difficulties if the banks fore-casts about its branches mortgage

book prove too optimistic.The current package has a funding

gap of some 30bn, which Lloyds hasarranged to have its financial advisers JP Morgan and Citigroup cover tothe tune of 15-20bn in bridge loansto the buyer.

But City A.M. has learned that thisloan is conditional upon Lloyds pre-diction that the funding gap will nar-row naturally to 10bn by the time thesale completes in 2013, due to cus-

tomers paying off their mortgages.If the UK economy and housing

market fail to live up to expectations,that could endanger the bridge loans,forcing bidders to find another sourceof funding.

Alternatively, they could bid for asmaller portion of the assets on sale,

but that risks upsetting theIndependent Commission on Banking,

which wants to see Lloyds sell moreassets and branches, not less.

All parties declined to comment.

Virgin couldprefer Rockbidto Lloyds THREE more years of sluggish growthwill weigh down on the UK, while theeconomic recovery across many peer

countries also looks set for slowdown,forecasters have said.

Below-trend growth threatens toknock chancellor George Osbornesdeficit reduction plans off track, theCentre for Economic and BusinessResearch (CEBR) announced thismorning.

The group estimates that theBritish economy will expand by just1.2 per cent this year, and fail to grow

by more than two per cent each yearfrom 2012 to 2014.

As a result, the budget deficit in2015-16 will be 25bn higher thanforecast by the governments fiscal

watchdog, the CEBR predicts.

Nonetheless, the groups econo-mists supported the degree of deficitreductions planned by the coalition.

It is not an exact science, but thechancellor looks to have roughly theright balance and deserves credit in adifficult environment, said CEBRchief executive Douglas McWilliams.

Member states across theOrganisation for Economic Co-opera-tion and Development (OECD) are fac-ing a potential slowdown accordingto figures released yesterday.

Deficit cuts atrisk from UKsslow growth

Lloyds chief Antonio Horta-Osorio wants a deal this year Picture: Micha Theiner/City AM

BY JULIET SAMUEL

BANKING

News 3CITYA.M. 12 JULY 2011

BY JULIAN HARRISECONOMY

ANALYSIS l Lloyds Banking Group PLC

p

5 Jul 6 Jul 7 Jul 8 Jul 11 Jul

60.0

57.5

55.0

52.5

50.0

47.5

45.0

44.5111 Jul

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THIS years health check of Europes banks will provide unprecedentednew insight about the industry that

will be useful in a time of market tur-moil, the head of the regulator over-seeing the test said yesterday.

We are still in a very fragile area, Andrea Enria, chairman of theEuropean Banking Authority (EBA),said in regard to current market condi-tions.

He said the EBA will for the firsttime look at confidential data andchallenge it, before releasing it forsupervisors and investors to assess.

We will put an unprecedentedamount of data out there, Enria said.

There had been calls from somecountries, including Germany, to limit

the amount of data that is disclosed.In a letter to the EBA, German bank-ing association ZKA (Zentraler

Kreditausschuss), which representsthe five associations of German banks,

warned that should publication takeplace in the envisaged form, we fearthat it will not help in any way to buildconfidence or calm the markets onthe contrary, quite the opposite is like-ly to occur.

Given the tense situation whichalready exists in money and capitalmarkets, we believe publishing theresults with the present level of detail

would exacerbate the sovereign debtcrisis, it added.

The warning however seemed tohave fallen on deaf ears.

The templates on how much data would be disclosed had not beenchanged and the EBA had not repliedto the letter, according to sources closeto the association.

The ZKA complained that publica-tion would reveal deep insight into a

banks business strategy, market posi-tioning and risk profile on a hithertounprecedented scale.

EU banks fearimpact of newstress tests

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CITY VIEWS: DO YOU THINK ITALY WILL NEED A BAILOUT FROM THE IMF?Interviews by Richard Partington, Caitlin Morrison and Alexander Sainty

I would have thought they would be OK. Itspossible that they could raise the money inter-nally. Theyre far better able to attract foreign

investors to buy their bonds than Greece. Theyalso have profit making industries.

ABHIJIT PANDYA | DDO SOLICITORS

I dont think theyre in worse shapethan Greece. It depends onGermany. They are the chancellors

of the EU, as it were, so I would thinkany decision on a bailout would betheir call.

MIKE OGILVIE | OGILVIE SEARCH

I dont think they will take a bailout. Im quite up on Italian politics because my wifes Italian. Its a more fis-cally independent place than other Euro countries and I think the people will more easily take higher taxesthan a bailout.

ALEX KERRY | WINTERFLOODS

ALCOA, the worlds third largest alu-minium producer, posted a jump insecond-quarter profits, aided by soar-ing prices for aluminium.

Net earnings at the US bellwetherhave more than doubled to US$322m(205m) compared with $136m in thesame quarter a year earlier, the firm

said in a statement yesterday.Revenue rose to $6.66bn, up 27 per

cent over the second quarter 2010 and11 per cent higher than the last quar-ter, beating market expectations.

Alcoa chairman and chief execu-tive Klaus Kleinfeld said the firmsoutlook remained positive despite

what he termed an uneven eco-nomic recovery.

Alcoas stock fell 2.87 per cent to$15.91 after analysts said a softening

of aluminium prices might affect itsthird-quarter results.

Alcoa second quarter profitdoubles on aluminium pricesINDUSTRIALS

EBA chair Andrea Enria said markets were still in a very fragile area Picture: REUTERS

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Open EveningCome along to our Open Evening to find out moreabout the programmes we offer, attend a departmenttalk or study skills session, and meet our staff.

Tuesday 12 July, 4.30-7.30pm

Birkbeck (Room B04)

Torrington Square, WC1

For further details visit:

www.bbk.ac.uk/business/news/open-evenings

www.bbk.ac.uk/business 020 7631 6836 Londons evening university

Apply nowThe School of Business,Economics and Informaticshas a wide range ofundergraduate andpostgraduate coursesavailable to startOctober 2011.

For further details visit:

www.bbk.ac.uk/business/prospective-students

School of Business,Economics and Informatics

SHARES IN BSkyB were rocked yes-terday by the revelation NewsCorp will not be making a bid atleast not in the short term.

It closed down 4.6 per cent at715p after earlier falling below700p for the first time in almost ayear.

One of BSkyBs major share-holders yesterday said NewsCorps bid for the broadcaster is

dead in the water. Crispin Odey,who has amassed more than 4mSky shares in the last five days,told City A.M. it was obviousthere is not going to be a bid forthe company, following the spateof damning revelations surround-ing News International and thepolitical furore surroundingMurdochs under-fire mediaempire.

Odey who now holds close to2.7 per cent of the firm main-tained Skys stock is still a bargain.

He added he is not buying in thehope of a rival bid but as a long-term investment. However, S&PEquity Research analyst AlexWisch said he believes the bid willeventually complete but addedMurdoch could be forced to partcompany with the whole of NewsInternational to force the dealthrough.

He said: This is obviously tak-ing longer than anybody expected.Im still surprised by the shareprice though as I believe it will

BY STEVE DINNEEN

MEDIA

Focus on News Corp6 CITYA.M. 12 JULY 2011

Bargain hunters should start fishing but broadcaster is not without risks

THE sell-off in BSkyB continued apace yesterday, as arbitrage traders piledout of the stock faster than you couldshout the deal is off. The satellitebroadcaster is still a brilliant company,however one of Britains best: bar-gain hunters should take note.

Analysts at Citi point out thatBSkyB was trading at 600p a sharebefore Murdoch made his bid arounda year ago. Add in the 20 per cent gainin the FTSE over the last year along with Skys outperforming earnings(worth another 15 per cent) and Skyshould trade at 810p.

Thats before you consider that thefirm is about to start throwing offhuge amounts of cash, now that it isexiting an investment-heavy period.There is a reason that Murdoch was sokeen to get his hands on the rest of thecompany.

Goldman was also among the bulls,

saying yesterdays close price of 715p

was an attractive point at which tobuy the stock. It expects the broadcast-er to deliver high single-digit revenuegrowth and a 160 basis points increasein ebitda margins in financial year2012, leading to strong cash flow gen-eration and 26 per cent earnings pershare growth.

However, as evidenced by the stag-gering events of the last few days,these are unpredictable times: bargainhunters should take care. One rumourdoing the rounds is that News Corpcould be forced to sell its 39 per centstake if Ofcom deems it is neither a fitnor proper owner of a broadcaster(which would see the share price tankeven further). We think thats unlike-ly, but it serves to show that this stockis not without its risks.

BOTTOMLINEAnalysis by David Crow

ANALYSIS l BskyB

p

2010 Aug Sep Oct Dec Feb Apr JunNov 2011 Mar May Jul

820

780

740

700

l HOW A BAD DAY JUST KEPT ON GETTING WORSE FOR NEWS CORP

4:30pmElisabeth Murdochcomes under pres-sure in the US asactivist investorsaccuse RupertMurdoch of nepo-tism over his fami-

lys hold over thebusiness. NewsCorp boughtElisabeths Shineproduction firm ear-lier this year formore than $600m.

10:20amNick Clegg calls forRebekah Brooks tostep down aftermeeting with mur-dered schoolgirlMilly Dowlers

mother and sister.He also urgesRupert Murdoch todo the decentthing and drop hisbid for BSkyB. BrianPaddick calls for apublic inquiry.

11:30amLabour leader Ed Miliband, who has maintained a high profilethroughout the scandal, calls for a judge-led inquiry and attacksDavid Cameron over his decision to appoint Andy Coulson.

3:55pmNews Int is accused of obtaining information from GordonBrowns bank account, legal files and his familys medicalrecords including those of his son with cystic fibrosis.

4.00pmNews Corp announces it is withdrawing concessions made overSky News, intended to smooth over the bid for Sky, making aCompetition Commission investigation a certainty.

4:20pmJeremy Hunt tellsthe House ofCommons he willrefer the BSkyBmerger to theCompetitionCommission. Ed

Miliband attacksDavid Cameron fornot being presentto answer ques-tions. Alan Johnsonasks for the organgrinder instead ofthe monkey.

Sky sinks as investors mull

a future without Murdoch

Sky first half resultsbeat forecasts

Cable wades intothe bid process

Hunt does not orderCompetition

Commission enquiry

News Corp profitssoar 40 per cent

News Corp wins provi-sional right to make bid

Sky results beatforecasts again

Sky slumps asMurdoch delays bid

for up to a year

Hunt expected tofinally green light

the bid

eventually go through. Sky iseverything to News Corp it will be the trophy asset in the UK.Letting go of News International isa possibility if it makes this dealhappen.

Meanwhile News Corp cameunder increasing pressure in theUS as a class-action lawsuitbrought against it by shareholders was updated to include com-plaints about the phone hackingscandal. A group of shareholdersled by Amalgamated Bank andCentral Laborers Pension Fund sayMurdoch allowed the culture ofcorruption to fester without prop-erly addressing it. They also say inthe legal papers, first filed to acourt in Delaware in May, thatMurdochs tendency to rely on hischildren for top jobs is detrimen-tal to shareholder value.

The corruption accusationsagainst the paper which sold4.5m copies of its final edition continued to mount yesterday, with fresh claims that policeguards sold royal contacts to theNews of the World.

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BANKRUPT care home operatorSouthern Cross admitted it was toshut down yesterday after the ownersof its 752 homes walked away fromnegotiations.

Shares in Southern Cross were sus-pended after it said its landlords

would take control of the homesand it would cease business.

The shock move sur-prised some who believedthe landlords wouldneed Southern Cross tomanage the provision ofcare.

It is currently envis-aged that the existinggroup will cease to bean operator ofhomes at the endof the restructur-ing period, thecompany said.

B r e w i nDolphin analyst

Sahill Shan said the outcome left vir-tually nothing for shareholders. Thislandlord outcome is much worse than

we feared, he said.Chief executive Jamie Buchan (pic-

tured) said the move should end theuncertainty that has affected the com-pany for months. We regret the lossof value which shareholders haveexperienced, he said.

Southern Cross said care operatorssuch as Four Seasons and Bondcareowned a third of its homes and would take over their running.The remaining 500 homes face a

less secure future, with someindustry sources expecting land-lords such as NHP to run them.

A Four Seasons spokesmansaid it did not expect to

take over runningother homes forthe remaininglandlords, butit was notsomething we

would ruleout.

BYALISON LOCK

SERVICES

MOST small and medium sized busi-nesses looking to borrow from banksgot what they wanted straight away,according to a new survey published

yesterday. The majority of requests for over-

drafts (72 per cent) and for loans (59per cent) were granted, the researchfrom BDRC Continental revealed.

Yet the youngest and smallest firmswere less likely to be granted funds,the survey showed, drawing renewedcriticism from business groups.

The smallest SMEs are losing out, with a third being refused outright when initially applying for newfinance, said John Walker of theFederation for Small Businesses. Thisfigure is more than double the biggerSMEs being refused.

For companies that have existed for

10 or more years, 70 per cent wereoffered the loans they sought; yet foryounger firms, only 44 per cent weregranted the desired loan.

Firms with a worse than averageexternal risk rating were far more like-ly to be turned down by lenders.

Only half (51 per cent) of SMEs areusing external finance. Fifteen percent said they had wanted to apply forfunding in the last 12 months but hadnot done so.

Banks are lending to SMEsbut young firms still miss outBY JULIAN HARRISFINANCE


SouthernCross to closeand break up

ANALYSIS lSouthern Cross

Residents:

31,000Staff:

44,000

Income:

80%from government /local authorities

20%from self-fundedoccupants

CARE HOMES:

752Total rent bill:

230mCost of care

599 per week

2010:

84.8%

2009

87.7%

2008

89.5%

2007:

90.7%

OCCUPANCY:

SHARE PRICE:

Flotation(2006):

225p

Peak (2007):

606p

Low(2011):4.8pCurrent:

0p*

* Shares suspended,effectively worth nothing

Income:

ANALYSIS l Southern Cross Biggest Shareholders

Credit Suisse Securities (Europe)

Henderson Global Investors

J O Hambro Capital Management

Wintrust (Guernsey)

Deutsche Bank

UBS Investment Bank

Lloyds Banking Group

Allianz Global Investors

ING Bank NV

Standard Life Investments

Source: Southern Cross

%11

.26%

11.11%

9.78%

9.36%

7.62%

5.15%

4.96%

3.63%

3.36%

3.34%

8/6/2019 Cityam 2011-07-12

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ARCELORMITTAL and US mininggiant Peabody Energy have made a A$4.68bn (3bn) joint-offer for Australias Macarthur Coal, the worlds biggest producer of pul-verised coal, as the demand for rawmaterials used making steel inten-sifies.

The cash offer of A$15.50 a sharerepresents a 40 per cent premiumto yesterdays close and comes justa day after Australia unveiled plans

to tax carbon emissions from someof the countrys worst polluters.

The board makes no recom-mendation in relation to theindicative proposal but will seek toengage with Peabody and ArcelorMittal in relation to theprice and terms, Macarthur saidin a statement.

In May last year, Macarthurrejected a A$15 a share bid fromPeabody, calling it too low. The USmining group had reduced its ini-tial offer of A$16 after the center-left Labor government consideredimposing a tax on coal and iron-ore

miners.Australias carbon tax has failed

to discourage Peabody this timearound as it seeks to increase itsAustralian presence.

The carbon levy of A$23 pertonne will affect some 500 compa-nies, including Rio Tinto, which voiced its disappointment sayingthat the policy would threateninvestment and jobs growth.

Meanwhile, shares inInternational Power were buoyedby the proposal after the electricityfirm said it stands to gain from thecarbon tax scheme.

Macarthur shares closed down2.8 per cent, at $11.08 yesterday.

Peabody and ArcelorMittal make$5bn bid for Australian coal giantMINING


NEWS | IN BRIEF

HSBC sells insurance businessHSBC exited from the UK car insurancemarket yesterday with the sale of itsclosed motor insurance book to US firmSyndicate Holding Corp for 68.5m.HSBC Insurance stopped writing newbusiness in 2009. The policies will large-ly complete within two years but some

accident claims have a longer tail, abank spokesman said. HSBC will still sellinsurance under its HSBC, First Directand M&S Money brands but they will beunderwritten by external insurers.

Hiscox adds 100m to capacityLloyds insurer Hiscox expects to write100m more business in 2012 than inthe past year, it said yesterday. Itexpects its Lloyds syndicate 33 to needa capacity of 1bn this year, up from990m in 2011, as it said the marketwas improving, particularly for reinsur-ance, and it wanted space available inthe event of a widespread market turn.

Lloyds pays claims 40pc fasterA new pilot scheme has allowed Lloydsto cut the time taken to pay insuranceclaims to 15 days from 25. The 40 percent fall was particularly seen in smallerclaims of under 100,000, leaving more

time for its staff to focus on the biggerand more complex claims. The pilotClaims Transformation Programmestarted in January 2010 and is beingextended to all Lloyds insurance lines.

LLOYDS GETS ANOTHER LIST

THE Lloyds building, the iconic home of the Lloyds insurance market, could be grantedlisted status by English Heritage this year. Designed by Richard Rogers, the 71m build-ing, can be listed now as its construction began 30 years ago, in 1981. English Heritagesaid the application could take several months as it was a significant building.

TROUBLED fire engine supplierAssetCo won a two-week reprieve fromits creditors to pursue its last-ditch saletalks yesterday.

AssetCo told a court hearing to dis-cuss a creditors petition brought by anumber of its sup-pliers that bidtalks had pro-gressed. The courtadjourned thehearing untilSaturday 25 July.

Bahraini bank Arcapita is in

exclusive talksfor AssetCo afterother biddersincluding USgroup Seacor

and Italian group InvestIndustrialpulled out.

But AssetCo said despite the currentdiscussions there was still no certaintythat an offer would be made.

Arcapita has made repeateattempts to buy AssetCo over recentmonths but the offer value has fallenfrom 80p to 2p per share as AssetCosdebts have increased and it has failed

to refinance a long-termdebt facility.

Its debts are now estimat-ed at between117m and 140mand it is being pur-sued by creditorsincluding parts

supplier Supply999; Halifax Bankof Scotland andthe InlandRevenue.

AssetCo gains twoweek reprieve to

continue bid talksBYALISON LOCK

SUPPORT SERVICES

AFTER a protracted search for a newchief executive, Deutsche Bank hasfinally settled on investment bank-ing chief Anshu Jain as being at leasthalf of the solution.

The avid cricketer and wildlifephotographer is likely to be joined atthe helm by Jrgen Fitschen, globalhead of regional management, inthe culmination of a career that hasseen Jain move up the ranks at theGerman lending giant over the last16 years.

He joined Deutsche in 1995, afterwhich he found himself promoted atfour key moments by current chiefexec Josef Ackermann, despite onemajor handicap: he does not speakfluent German.

The first came in 2001 when Jaintook over the fixed income business

after his then-boss died in a planecrash.

After building up the team, he wasgiven an additional brief in equities,and played a key role in turning thebank into one of the leading flowhouses in the world, propellingDeutsche into its position as one of afew top global trading houses.

His next break came in 2009, when Jain was promoted to the banks management board,formed of its most senior exec-utives, as co-head of corporateinvestment banking (CIB).

And when his co-headMichael Cohrs left a yearlater, Jain took over solo atthe behest of Ackermann a path he mightremember well as heascends the groupsthrone again as a co-chief this year.

BY JULIET SAMUEL

BANKING

ANSHU JAIN

UK investment banker to followin Ackermanns steady footsteps

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NORTHUMBRIAN Water surged 5.1per cent yesterday after it received a2.4bn provisional offer from HongKong billionaire Li Ka-shing.

Northumbrian will now open its books to Ka-shings Cheung KongInfrastructure (CKI).

The 465p a share bid would give a21 per cent premium toNorthumbrians share price beforereports of a takeover surfaced lastmonth. Shareholders will alsoreceive a net final dividend of 9.57p.

Analysts had expected CKI to pay450-500p.

The utility released a statement tothe market saying the approach doesnot guarantee a firm offer will bemade.

The UK has proved a popularinvestment destination for octoge-narian Ka-shing, Hong Kongs richestman, who has bought into regulatedutility assets in the past.

CKI has already invested in twounlisted British water companies itowns Cambridge Water and has a

4.75 per cent stake in Southern

Water.However, it has agreed to sell

Cambridge Water prior to announc-ing a firm bid offer forNorthumbrian.

Cambridge Water has a regulatorycapital value (RCV) of 57m, whileNorthumbrian Water has a groupRCV of 3.6bn.

Key to any deal will be CanadianOntario Teachers Pension Board,

which owns 27 per cent ofNorthumbrian. Analysts believe it

will seek to maintain an interest inthe company if a deal goes through.

Fellow listed water companiesUnited Utilities, Severn Trent andPennon Group all fell slightly yester-day.

CKI makes a

2.4bn bid forNorthumbrian

NESTL, the worlds largest food com-pany, is paying a hefty $1.7bn (1.1bn)for a 60 per cent stake in candymakerHsu Fu Chi International to movedeeper into fast-growing markets inChina.

Nestls biggest deal in China so farwill take it closer to its target of 45 percent of sales from emerging markets

in about 10 yearsInternational companies have beenrushing to expand in Asian markets,

where buoyant economic growth has boosted consumers purchasingpower.

Yesterday alone, Asia-related dealsworth some $15bn were announced,such as Dutch group Philips buy ofChinese appliance firm Povos.

Nestl paid about 3.3 times sales forthe stake, more than the 2.4 times US

food group Kraft Foods paid for Britishcandy group Cadbury.The Nestl deal was relatively expen-

sive when compared with top deals inthe food sector. Only Mars had to putmore on the table for Wrigley at 4.2times sales in 2008 and Danone forNumico at 4.5 times in 2007.

The deal will allow Nestl toincrease its footprint in emergingmarkets and get closer to catching up

with rivals Danone and Unilever.

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Nestl spends $1bn to buystake in Chinese candymaker

BY STEVE DINNEEN

UTILITIES

BYHARRY BANKSFOOD AND BEVERAGE


Li Ka-shing offered a 21 per cent premium to the utilitys pre-bid price Picture: REUTERS

ANALYSIS l Northumbrian Water

p

7 Jul 8 Jul 11 Jul6 Jul5 Jul

450

440

430

447.7011 Jul

ADVISING Northumbrian as it negoti-ates the multi-billion pound offer fromthe richest man in East Asia andeleventh richest man in the world, isDeutsche Bank.

Heading up the advisory team isAlan Brown, global co-head of thebanks natural resources group. Brown

was promoted to head of the banks

natural resources division in Europe,Africa and the Middle East in 2007.

He is working alongside highly-rated M&A bankers Omar Faruqui andMartyn Nicholas.

Deutsche is also acting as corporatebroker on the deal, with MartinPengelley leading the team. In thepast Pengelley has acted as financialadviser to Whitbread and Costa andcorporate broker to Whitbread as thefirms made an offer for CoffeeheavenInternational.

He has also acted as corporate bro-ker for Premier Oil in 2008 and TaylorNelson Sofres (TNS), also in 2008,

during its merger with GfK.

ADVISERS: DEUTSCHE BANK

ALAN BROWN

DEUTSCHE BANK

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PICTURE THIS THE WALLS of the Royal Academywere last night relieved of some of the1,117 paintings in the SummerExhibition, after the gallerys corpo-rate sponsor Jefferies invited itsclients to buy the art on display in aprivate view with a difference.

The RA agreed to keep its salesdesks open throughout the

drinks reception soclients from firmsincluding Anglo American, AXA,

BlackRock, Fidelityand M&GInvestments could

shop for the art, which ranged fromunder 100 to tens

of thousands.

Something foreveryone, then althoughthe art-lov-ing hostsf r o mJefferies were the

keenests h o p -p e r s ,T h e

Capitalisth e a r s ,led byi n t e r -nation-

a lpresident

D a v i dWeaver, whohas a collec-tion of con-

temporaryart at his

London home, and DomenicoCrapanzano, head of European rates,who bought a few pieces, no doubtto brighten up Jefferies reception.

NO REST FOR UBSNOT TO be outdone on the art front,UBS yesterday unveiled a giant bill- board by British artist StephenWiltshire that will be displayed inthe arrivals hall at New Yorks JFK air-port to promote the banks we willnot rest slogan.

Wiltshire sketched the Manhattanscene from memory over three daysafter taking a helicopter ride aroundthe island, and UBS was quick to drawparallels between the artists atten-tion to detail and the care the banktakes on client business.

Its the same spirit of restlessness

with which we approach our clientsgoals, says the text on the side of the76-metre hoarding, in a move that will no doubt amuse the Citys jet-lagged executives as they land in NewYork after a long business flight.

SIGHT SAVERS AHEAD of Thursdays StandarChartered Great City Race, StandardChartereds group finance directorRichard Meddings (left) told TheCapitalisthow he recently travelled toTanzania to see how the funds raised by last years race have helped thecommunity in Dar es Salaam.

Meddings, who is chairman of theraces designated charity Seeing IsBelieving, said: Since we launchedthe scheme in 2003, Seeing IsBelieving has raised more than$32m and over 2.78m people in

developing markets have benefitedfrom sight restorations.

REVEALED: THE CITYSBEHIND-THE-SCENES

BOARDROOM LUNCHES THE DAYS of conspicuous cliententertainment are over, as the Citysfattest cats rein in their largesse inthe fallout of the f inancial crisis.

Or are they? Just days after theBribery Act came into force, TheCapitalist hears business is boomingfor a high-end catering service recre-ating City restaurants in the board-rooms of investment banks, privateequity houses and hedge funds toallow financiers to entertain clientsin a more discreet manner.

Away from the publics prying eyes,City firms are quietly spending thou-sands on the lunches arranged bySissi Fabulous Food (SFF), where chefsand butlers are imported to the busi-nesses boardrooms to serve gourmet

menus alongside world-class wines.Demand for the lunches has soared

so sharply since the recession thatSFF now organises between two andfour City client lunches each week,

with the average spend of 2,500 forten people rising to more than 6,000if the hosts go to town on the wine.

People dont want to be seen to bespending too much money in the cur-rent climate, said Gregory Schaad-Jackson, executive head chef & eventsmanager at Sissi Fabulous Food. Butbehind the scenes it is conspicuousconsumption as usual.

The Capitalist has obtained themenu for one City firms boardroomat home last June (pictured farright) and as you can see thefinancial institutions clients wouldhardly have been wishing they hadbeen taken to The Ivy instead.

However, Schaad-Jackson would-nt name any of his City clients, nor

would he say which firm asked himto reproduce Heston Blumenthalssnail porridge and bacon-and-eggicecream, or even which companyspent 5,000 on wine alone...

Above: SissiFabulous Foodfounders SissiSchaad-Jacksonand her sonGregory

Right: RA Summer Exhibition exhibitDeep Impact byKeith Tyson

The Capitalist10

EDITED BY

HARRIET DENNYSGot A Story? [email protected] The Capitaliston Twitter: @citycapitalist

CITYA.M. 12 JULY 2011

RegisteredinEnglandandWales

MenuCompaniesHouse04685092Unit6KClapham North ArtCentre32Voltaire Road, LondonSW4 6DH

1 1

Businesslunchfor10onFriday11thJune2010,1pm2:30pmVenue:-

Amuse bou ch eCucumberanddillvichyssoisex8

~

S tar te r Spinachandricottafilledtortelliniwithrocketpestox4

Caesarsaladwithgrilledconfitchickenfilletsx3

WithsautedThai-spicedprawnsx1

~Main cou rs e

Loinofpork withmorelmushroomcreamsauceandmixedroastedvegetablesx4Filletof Mediterraneanseabassonabedofwildricewithtomato&redpeppercoulis, roastedleeksandasantinibalsamicsaucex4

Freshlybakedbreads

~

Dess e r t Summerpudding withcrmeAnglaisex5

Sissis awardwinningespressoandpraline chocolatecakex3~

MeursaultDomMichelotCh. Mouton-Rothschild(1990)

~Coffee, mintinfusion&petitsfours

8/6/2019 Cityam 2011-07-12

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WEAK supply and demand has leftthe UK housing market in a stale-mate despite a pick-up in mortgagelending, new data suggests.

Demand failed to rise in June while the recent growth in newinstructions to market propertiesground to a halt, according to the lat-est survey from the Royal Institutionof Chartered Surveyors (RICS).

A net balance of just one per centof surveyors reported a rise in newinstructions (down from +14 per centin May), while new buyer enquirieswere completely flat.

Overall activity levels barelychanged in June, RICS reported.Newly agreed sales edged up slightly with six per cent more surveyorsreporting sales rose rather than fell(up from five per cent in May).

The average number of sales persurveyor came in at just 14.8,unchanged from the previousmonth.

With continued uncertainty overthe jobs market and the economy,this subdued picture is set to contin-ue, said RICS spokesperson AlanCollett.

London, however, remains a mar-ket apart with both sales and pricesshowing a greater degree ofresilience, Collett added.

London was again the only regionto experience rising prices, the sur-vey said, and the only area where sur-veyors expect prices to increase overthe next three months.

Many young people are still strug-gling to get onto the property ladderin the capital, with an average of 6.7tenants competing for every rentedroom in London, according to thewebsite easyroommate.co.uk.

Yet mortgage lending could bestarting to pick up, the Council ofMortgage Lenders said yesterday. Thenumber of loans for house purchasewas up 1.7 per cent in May, comparedto April.

There were 41,500 loans worth5.9bn advanced for house purchasein May still five per cent below thelevel in May last year, when 43,800loans totalled 6.3bn.

The lack of movement in thenumber of first-time buyer loans hasput mounting pressure on an alreadyover-loaded private rental sector, saidDavid Whittaker of Mortgages forBusiness. Tenants are scrapping forproperties and rents are climbing.

TOTAL retail sales improved by 1.5 percent in the year to June, according tofigures released by the British RetailConsortium (BRC) today.

While food sales slowed slightly, thiswas offset by increased non-food sales,attributed to the summer clearancesales beginning earlier this year.

Like-for-like sales which exclude

changes in shop floor space weredown 0.6 per cent in the year.

Stephen Robertson, DirectorGeneral of the BRC, said: Sales contin-ue to be under huge pressure from thesqueeze on disposable incomes pro-duced by rising inflation and low wage growth. The BRC also pointedout that increased sales did not extendto big-ticket items such as electronicappliances.

Although there has been improve-ment, the BRC figures show thatgrowth has slowed when compared to

last year, when June saw a 3.4 per centrise in total sales.

Robertson said: Given Junes spateof shop closure announcements and weak company results, these figuresare not as bad as they could have beenbut it shows just how tough times arewhen total sales growth of 1.5 per centis regarded as not that bad.

On the three-month average which removes some monthly volatili-ty total sales are up 2.7 per centannualised, and 0.8 per cent annu-alised on a like-for-like basis.

Internet, mail-order and phone salesincreased by 11.5 per cent in June.

High street sales bounce back in Juneyet British retailers remain cautious

AMERICAN President Barack Obamawill refuse to sign a temporary exten-sion of the US debt ceiling, he said yes-terday, insisting that Republicans andDemocrats must come to a long-termagreement this month.

We should use this opportunity todo something meaningful on debtand deficits, Obama said at a press

conference in Washington DC. Weregoing to meet every single day until we get this thing resolved. ThePresident urged Republicans andDemocrats to put politics to one sideand concede ground over theirdemands.

Im prepared to take on significantheat from my party to get thingsdone, Obama said, also praisingRepublican leaders John Boehner andMitch McConnell. If they are sincere,

which I believe they are, then theyllhave to compromise, Obama said.

Boehner, current Speaker of theHouse of Representatives, admitted onSunday that talks on a $4 trillion (2.5trillion) ten-year deficit reduction planhad broken down.

Republicans are holding out againsttax hikes, while many Democrats areunhappy over cuts to entitlement pro-grammes such as Medicaid andMedicare.

President Obama rules out short termextension to Americas debt ceiling

House marketstuck in a rut

BY JULIAN HARRIS

HOUSING

BY CAITLINMORRISON

RETAIL


Obama called on Republicans and Democrats to come to a long term agreement over deficit reductions Picture: REUTERS

Londons troubled IPO market sees signs of life

WHISPER it softly, but thereare signs that the icinessthat has characterised theLondon IPO market is begin-

ning to thaw.

Over the past couple of weeks, twoforeign-based groups, Ophir Energyand Global Ports, have successfullyraised funds in the London markets,in contrast to the many groups who

have had to pull their flotations overthe past year as it became obviousthere was insufficient demand fortheir shares.

Ophir Energy, an African-focusedexploration company backed byLakshmi Mittal, raised around300m.

Those who worked on the float sayit got through by sticking to a realis-tic valuation and by tying up some ofthe existing investors such as Mittal

and Och Ziff in a Glencore-like cor-nerstone investor type relationship.Even so, they say that around half ofthe new money raised came fromnew as opposed to existing investors.

Ophir did have its own IPO adviser,David Waring from Lexicon Partners,and he seems to have helped facilitatethe transaction rather than stoke uptension between the company andthe book-runners by looking for anunrealistic price.

The group and its advisers chose toprice the new shares at 250p, the bot-tom of its range, and yesterday theshares were trading at around thatlevel in conditional trading.

The Russian-backed Global Portssaw its shares trade at around a 17 percent premium on its first day of trad-ing and its shares are still around 10per cent ahead of the float price.

Global Ports priced its float at a bigdiscount to its peers in the sector andits owners have a history of conduct-ing new issues at reasonable prices. Inaddition the story here was one moreof a company wanting a UK listingrather than of a group being desper-ate to raise cash.

Meanwhile theres been a livelydebate going on about the kind ofmessage bookrunners send out toinvestors during the process of book-

building. BarCaps Sam Dean isagainst bookrunners giving messagesthat books are covered taken as asign that an IPO will fly because hefeels that in the absence of such mes-

sages, confidence collapses.Craig Coben, head of equity capitalmarkets at Bank of America MerrillLynch for EMEA, thinks otherwise.

My experience is that the successof a deal rests on market conditionsand the strength of the story.Investors expect to see levels of cover-age and, in my view, transparency is agood thing.

The debate has only just [email protected]

INSIDE TRACK

DAVID HELLIER

ECONOMIC NEWS

NEWS | IN BRIEF

Exports in construction tools riseExports are providing a vital lifeline formanufacturers of construction products,according to a survey released yester-day. The number of producers exportingconstriction products rose by 18 percent in the first three months of theyear, the Construction ProductsAssociation said. Yet inflation is severelyhitting the industry, with 95 per cent offirms reporting fuel, energy and rawmaterial price hikes in the last year.Manufacturing input prices rose 17 percent in the last year, the Office forNational Statistics has calculated.

French industry rebounds in MayFrench industrial production bounced

back in May well above the expectationsof economists, rising two per cent. In

April prices had sunk by half a per cent.The official figures, released yesterday,also showed that manufacturing outputrose by 1.5 per cent in May.

Price pressures tame in NorwayNorwegian inflation came out wellbelow expectations yesterday, measur-ing 1.3 per cent on the consumer priceindex for June. Core inflation, whichexcludes volatile elements such as ener-gy and food, measured just 0.7 per cent.

Turkeys trade deficit widensTurkish assets weakened yesterday asdata showed Mays current accountdeficit rising 164 per cent to $7.75bn,slightly undershooting a forecast but

serving as a reminder of Turkey's deepexternal imbalances.

BY JULIAN HARRIS

US ECONOMY

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LONDON-LISTED marketing group Aegis has bought media planningand buying agency MediaVest, in adeal valued at about 95m.

The communications firm hasacquired 75 per cent of the companyand has an option to buy the remain-ing 25 per cent it does not own from2016.

Aegis paid an initial 27m, whichgives consideration for MediaVests working capital, while the fullamount of up to 95m will be paidsubject to the firm achieving profittargets between this year and 2016.

Managing partners in theManchester-based company, Andy Jealand Dave Lucas, sold their 77 per centstake to Aegis.

Founded 17 years ago, MediaVesthas operations in Manchester, Leeds,Newcastle and Edinburgh andemploys 216 staff.

It counts Holland and Barrett, thehealth store chain, and travel firmThomas Cook among its clients.

Profit before tax at MediaVest forthe year ended 28 February 2011 was7.4m.

MediaVest will become part of

Aegis Medias Carat and iProspect net-works and will immediately start act-ing under the marketing firmsbrand names.

Aegis chief Jerry Buhlmann said:[This acquisition] improves our mar-ket share in the UK and furtherincreasing our performance market-ing and digital capabilities.

Aegis is currently in the process ofselling off its Synovate marketresearch unit. The firm is said to havesnubbed an approach from privateequity house Doughty Hansons cor-porate adviser, Wyvern Partners.

The Mayfair-based boutique saidthat it had approached Aegis inadvance of the company agreeing toenter exclusive talks with Frenchgroup Ipsos.

BRITAINS computer games industryhas called for a tax break to preventthe so-called brain drain that hasseen 20 per cent of UK companieslose staff to jobs overseas in the last12 months.

TIGA, the trade association repre-senting the UK video games industry, yesterday warned that large-scale

emigration of skilled and experi-enced staff away from the UK was

threatening the sector. TIGAs recent survey of 104 UK

game businesses showed that overthe last 12 months, 20 per cent ofthose polled had lost medium to sen-ior level staff to foreign countries,with the majority leaving for Canada.

Dr Richard Wilson, chief executiveof TIGA said: Unfortunately, some ofour overseas competitors, powered bytax breaks for games production,have the financial resources available

to entice some development staffaway from the UK to work in their

studios. This is not just damaging tothe UK video games sector. It is dam-aging to the UK economy.

Despite PWC predicting a growthin the global market for video gamesfrom $52.5bn in 2009 to $86.8bn by2014, the UK game development sec-tor has seen a nine per cent fall inemployment over the last two years,with annual investment falling from458m to 41m.

In contrast, the Canadian games

industry has grown by 33 per centover the same time period.

Computer games industry calls for taxrelief to halt exodus of talent from UK

BAYFIELD Energy, the Caribbean oil-explorer founded by former BurrenEnergy executives, has completed itsinitial public offering on Londonsalternative investment market (AIM),raising 54m.

The group placed 90m shares at60p each on AIM yesterday, and will be valued at around 130m whenexisting shares are included.

The oil and gas explorer has keyassets in Trinidad and Tobago, where

it secured a 25-year licence over theGaleota Block and operation of theproducing Trintes field in April 2009.

The company expects Trintes toachieve production of about 2500 bar-rels of oil per day (bopd) this year andaims to peak at 8000 bopd in 2013.

The directors, management andrelated parties have invested 29.4mto date.

Members of the board were former-ly with Burren, which floated on the

London Stock Exchange with a mar-ket value of 175m in 2003.

Bayfield Energy raises54m through UK listing

OIL & GAS

DEBT-RIDDEN directories group Yellhas agreed to buyout a US technologystart-up for up to $20m (12.5m).

Yell will purchase privately ownede-commerce company Znode, paying$18m in cash.

The struggling Yellow Pages pub-lisher will also settle the tech firmsexisting net debt of $1.2m.

The market responded well to theacquisition, with shares in Yell clos-ing up nine per cent at 9.49p per unityesterday.

Buying Znode gives Yell e-com-merce technology that it can use toconnect small businesses with con-sumers on a local level.

The startups platform enables businesses to expand their onlinefootprints using franchising andmulti-store strategies. The Columbus,Ohio-based firm was founded in 2007and will continue its operationsthere.

It will be incorporated into thegroup as part of a new consumer divi-sion, called Yell Connect, which couldindicate the future direction of thefirms strategy.

Yell chief executive Mike Pococksaid: The Znode team and their inno-vative technology provide Yell with aplatform for our digital business andenable us to provide e-commerce solu-tions to small businesses, connectingthem more efficiently with theirlocal consumers.

Yell buys UStechnology

start-upPUBLISHING

HEATHROW enjoyed its third consec-utive month of record passenger

numbers in June but freight vol-umes were hit by the fragile econom-ic recovery.

Airport operator BAA said 6.1mpassengers travelled throughHeathrow in June, a 6.3 per centincrease on the same month lastyear.

The figures represented the high-est number of passengers for themonth on record.

But some of the lift compared with

the previous year can be attributed tothe strike that limited flights duringthat period in 2010.

BAA chief executive ColinMatthews said: Heathrows position

as the UKs only hub airport enables itto benefit from growth in long-haulroutes and emerging economies.

Junes passenger figures are anearly indication of a busy summer,and we will focus on delivering thebest possible service standards at ourmost popular time of year.

However, cargo traffic at BAAs air-ports last month fell 1.5 per cent onlast year, and 20 per cent on June2009 as the economic downturn con-

tinued to take its toll on internationaltrade.

BAA also admitted its otherLondon airport, Stansted, is continu-ing to see declining passenger num-

bers.They dropped 3.3 per cent to 1.7 mlast month, which is bad timing asthe Competition Commission isexpected to publish a report nextweek ordering BAA to sell the airport.BAA has failed to overturn the deci-sion in a series of lawsuits.

Elsewhere, Gatwick airports ownerGlobal Infrastructure Partners said ittoo enjoyed a 5.2 per cent rise in pas-senger numbers to 3.2m last month.

Passengers flock to HeathrowBY JOHN DUNNE

AVIATION

Aegis snaps

up MediaVestin 95m dealBYRICHARD PARTINGTON

MEDIA

BYALEXANDER SAINTY

TECHNOLOGY


BLOOMSBURY CAUTIOUS ON TRADING OUTLOOK

HARRY Potter publisher Bloomsbury Publishing said yesterday it remains cautious abouttrading due to soft revenues and difficult prevailing retail conditions. The publisher saidthe current consumer economy is the worst it has been for decades. Bloomsbury, which pub-lishes the Harry Potter series in the UK, also said yesterday that it has bought ContinuumInternational Publishing Group for 20.1m.

ANALYSIS l Aegis

p


164

160

156

154.6011 Jul

JUNE 2011 PASSENGER NUMBERS

Heathrow

UP

Gatwick Stansted

UP 5.2%

Down3.3%

brazil was the fastest growing route to and from heathrow65.4 per cent growth in passengers over june 2010.

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RECRUITMENT company MichaelPage International has posted a 32 percent jump in second-quarter grossprofit, driven by a rise in permanentplacements and international expan-sion.

Michael Page, which finds jobs forpeople in the financial, accountingand legal services sectors, said itexpected 2011 profit to be broadly inline with current market estimates of117m.

The company has seen growth driv-en by business in fast expandingeconomies in Asia and Latin America,which need specialist workers.

Chief executive Steve Ingham said: We are gaining in market share innearly all of our markets. This is a realopportunity to grow fast.

It was an excellent half. Were fir-ing on all cylinders around theworld. For the quarter to June, groupgross profit was 147.8m, comparedwith 111.7m last year. Gross profitfrom permanent placements grew 35per cent to 118.6m.

Last week, rival Hays reported an 11per cent rise in fourth-quarter netfees as growth at its international

division helped offset weakness at itsUK business, which was hit by contin-ued tough public sector conditions.

Michael Page, which operates in 32countries, has seen its shares gain 38per cent over the past year

It said it is planning expansion inmarkets including Colombia, TaiwanIndonesia and Peru.

The companys profit has jumped by 50 per cent in the Asia Pacificregion so far this year.

But Ingham added on the domesticscene: The UK is our toughest mar-ket. It is a very developed and com-petitive recruitment market, whereas when you go to a lot of the fasterdeveloping markets around the world, we have very little competi-tion.

CORPORATE Britain is overpaying atleast 5bn a year into pensionschemes, according to research byPricewaterhouseCoopers (PwC).

UK-based firms are failing to calcu-late the gains that can be made overthe longer-term, leading them to paymore than necessary into defined ben-efit pension schemes.

Outmoded ways of calculating thecontributions needed to cover future

pension payouts do not reflect the waypension scheme assets are investedand the gains that can be anticipated.

The mismatch has led firms to setfunding targets about 10 per centhigher than necessary, the researchclaims.

Pension scheme funding targetsoften assume that funds held forretired workers will be paid for bylower risk investments such as bonds.

As the proportion of pensioners

increases, funding requirements arebeing based on a greater proportion of

low growth assets that, for manyschemes, does not reflect the actualinvestments the scheme holds.

Jeremy May, partner in the pensionspractice at PwC, said: Currentapproaches to setting funding targetsare too blunt, typically assumingschemes immediately switch invest-ments into lower risk assets as mem-bers retire.

The reality for most schemes is amore gradual transition of invest-

ments, particularly now life expectan-cies have increased, he added.

Corporate Britain paying 5bn morethan necessary into retirement plans

DRUGS industry supplier Lonza isbuying US-based Arch Chemicals forsome $1.2bn (750m), making it theworlds largest player in the multi-bil-lion dollar microbial control market,the groups said.

The move, which boosts Lonzas lifescience unit and also helps protectthe Swiss group against the impact ofthe strong Swiss franc, puts Lonza inpole position in an area that plays akey role in the fight against disease-

causing bacteria.Lonza will pay $47.20 per share for

Arch Chemicals in cash, a premiumof 36.7 per cent to the US groupsaverage closing price over the last 30trading days, and the bid has theunanimous backing of ArchChemicals board.

Based on the offer price for all theoutstanding shares, Arch Chemicalsenterprise value would be around$1.4bn. Arch Chemicals had sales ofaround $1.4bn in 2010, the groupssaid yesterday.

Lonza snaps up Americanrival Arch in 750m dealPHARMACEUTICALS

THE TOTAL value invested by pensionfunds in alternative assets worldwidehit close to $1 trillion (626bn) lastyear.

Alternative assets managed onbehalf of pension funds by the worldslargest fund managers grew 16 percent to $952bn, according to researchproduced by Towers Watson in con-

junction with the Financial Times.

Total assets under management(AUM) for these managers increasedby 12 per cent to $1.9 trillion, mean-ing half of their assets are invested bypension funds.

Institutional investors continue todiversify into the full range of alterna-tive assets, as the benefits of diversifi-cation become apparent and certainasset classes become more accessible,said Towers Watson global head of

research Craig Baker.

Pension funds investmentin alternative assets rising

PENSIONS

RENAULT pared its forecast for a risein the global auto market this year

after disruption from the Japaneseearthquake and said Europe, a keymarket for the French carmaker, willlag the rest of the world.

Renault, whose partner is JapansNissan yesterday predicted a 3-4 percent rise in worldwide sales volumesin 2011. The group, whose brands alsoinclude Renault Samsung Motors andlow-cost Dacia, stuck to its forecast forEurope to lag the global trend with a0-2 per cent fall.

In January, Renault had forecast arise in the global market of morethan four per cent, before the earth-quake in March that devastatedJapanese automotive parts suppliers

and had knock-on effects for the glob-al automotive industry.Renault shares closed down 1.39

per cent at 37.82.Renault said it now saw a 4-6 per

cent fall in its home market ofFrance, compared with a previousprediction of an 8-10 per cent drop.

The French automaker reported a1.9 per cent rise in its own first-halfvehicle sales, boosted by internationalgrowth.

Carmakers are chasing salesgrowth in booming markets such asBrazil and India as sales stagnate inmature regions like Europe.

Japanese quake hits RenaultBYHARRY BANKS

AUTOMOTIVE

Michael Page

in permanentroles boostBY JOHN DUNNE

RECRUITMENT

BYRICHARD PARTINGTON

PENSIONS


ANALYSIS l Renault

42

40

38

37.8111 Jul


ANALYSIS l Michael Page Internationalp


560

550

540

530

530.0011 Jul

ANALYST VIEWS: HOW WELL PACED ISMICHAEL PAGE FOR GROWTH? Interviews by John Dunne

PAUL JONES | PANMURE

We trim our target price slightly on this update, despite the ongoing

progress, given current valuations. The impact that tightening economic condi-tions can have on the bottom line, however, means the shares remain a Hold. Pageremains the best franchise to play the recruitment cycle in our view.

HENRY CARVER | PEEL HUNT

First-half net fee income was slightly ahead of expectations. However,as a result of continued investment in further growth, we expect full-year profitsto be in line. We maintain our Hold recommendation. We also note the departureof the finance director, who is very well regarded.

JOHN CUMMINS | ALTIUM

Management highlight significant investment plans which are expectedto leave the full year outturn broadly in line with current consensus earnings beforetax. We are likely to leave our estimates for full year unchanged at 114.9m and con-tinue to see upside risk. But Michael Page continues to be our staffing pick.

NEWS | IN BRIEF

Centamin buys Sheba for 7.5mCentamin Egypt said it made a recom-mended 7.48m offer for a small goldexploration company operating inEthiopia, expanding its reach outside of

Egypt. Sheba, which is quoted on thePLUS market, owns and operates threegold and base metal exploration licencesin Northern Ethiopia that lie within theresource-rich Arabian Nubian Shield,also host to Centamins flagship Sukarigold project Centamins cash and shareoffer is a 124 per cent premium toShebas closing share price on Friday.

OFT delays Cosalt disposalMarine safety group Cosalt said the dis-posal of its marine unit had been delayedby the Office of Fair Trading (OFT). Thedisposal of the marine business is nowunlikely to be completed by 22 July, aspreviously expected. On 3 May, the com-pany announced the disposal of itsmarine unit, comprising its UK and conti-nental marine operations, to SurvitecGroup for a headline price of 31m.

Barry Callebaut sells Europe armBarry Callebaut, the worlds largestchocolate products maker, said it wouldsell its European consumer businessStollwerck to Belgiums Baronie Groupfor an undisclosed price. The group,which makes chocolate for companiessuch as Nestle and Hershey, has beentrying to sell the unit for years. In 2009,a deal with Spains Natra failed as thetwo companies could not agree on thevaluation.

AIG to reshuffle book-runnersAIG plans to replace one or more WallStreet banks in its next sale of sharesfrom the US government, because it wasdisappointed in the banks efforts todrum up interest in the previous offer.AIGs recent share offering was led byBank of America, Deutsche Bank,Goldman Sachs and JPMorgan.

Michael Page chief executive Steve Ingham has seen a 32 per cent profit jump

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ICAPThe interdealer broker has appointedMark Price as group chief operatingofficer, subject to FSA approval. Price,

who will start on 3 October, joins ICAPfrom Deutsche Bank, where he waschief operating officer for global credit& emerging market debt.

Barclays WealthAndrew Tailby-Faulkes will join thewealth manager in September as amanaging director within its WealthAdvisory business, reporting to thedivisions head Rob Withecombe.

Tailby-Faulkes is currently a senior pri-vate client partner at Ernst & Young inthe UK, where he is also global marketsleader for private client services.

Esprito SantoEsprito Santo Investment Bank hasappointed Andrew Fairclough as direc-tor of corporate broking. Fairclough

joins from Evolution Securities, wherehe was a director of the Corporate

Broking and Capital Markets team. Thebank has also hired Gerald Khoo, for-merly head of transport at ArbuthnotSecurities, as a transport analyst.

State Street Global AdvisorsThe investment management business

of State Street Corporation hasappointed Enda McMahon as head ofcompliance for EMEA and Niall OLearyas head of product engineering forEMEA. Both joined SSgA as a result ofits acquisition of Bank of Ireland AssetManagement earlier this year.

Rand Merchant BankJudith Mosely, formerly of SocitGnrale UK, has joined Rand

Merchant Bank as business develop-ment director for the resources sector,focusing on international mining com-panies interested in developing theirbusiness in Africa.

Merrill Lynch Bank (Suisse)

Concetta Caruso, formerly global headof global instiutional operations atCapital Group, has been appointed aschief operating officer of Merrill LynchBank (Suisse). The Swiss bank has alsoappointed Sophie Chapuisat, formerlyof Banque Heritage (Suisse), as globalhead of intermediary business andChristopher Robinson, formerly ofHinduja Bank, as head of legal forMerrill Lynch Bank (Suisse).

CITY MOVES | WHOS SWITCHING JOBS Edited by Harriet Dennys

+44 (0)20 7092 0053morganmckinley.com

To appear in CITYMOVESplease email your careerupdates and pictures to [email protected] SPECIALISTS IN GLOBAL PROFESSIONAL RECRUITMENT

in association with

Wall Street stockhits months low

US stocks suffered their worstday in nearly a month yester-day as concern about the stale-mate in US budget talks and

growing debt problems in theEurozone prompted investors to

hedge against further losses.The S&P 500 dropped nearly 2 percent on concerns that Europes debtcrisis would spread to Italy. Europeanofficials were still struggling to solveGreeces fiscal problems as Italysmarkets have been roiled by worryabout its banks.

Todays decline is not necessarilythe start of a correction, but suggestswe are in for a wild ride this week,said Randy Frederick, director of trad-ing and derivatives at the SchwabCenter for Financial Research inAustin, Texas.

The Eurozones woes added anoth-er layer of uncertainty to the stockmarket already rattled by Fridaysexceptionally weak jobs report.

Whats happening today is some-thing that should have happened onFriday. The disappointing jobs reporton Friday on top of all the concerns

on budget talks and Europe haveprompted the sell-off, Frederick said.

While investors still consider itunlikely there will be no deal on thedebt, the lack of resolution at a timeof growing international concerns weighed on sentiment. The CBOEVolatility Index or VIX, Wall Streetsbarometer of investor anxiety, spiked15.3 per cent.

The Dow Jones industrial average was down 151.44 points, or 1.20 percent, at 12,505.76 at the close. TheStandard & Poors 500 Index wasdown 24.31 points, or 1.81 per cent, at1,319.49. The Nasdaq Composite Index

was down 57.19 points, or 2.00 percent, at 2,802.62.The S&P 500, which lost its gains

for the month, was near its 100-dayand 50-day moving averages, botharound the 1,316 level. The Dow andthe Nasdaq remained modestly in theplus column.

Dashing hopes for a deal on larger-than-expected spending cuts to tamethe US budget deficit, a highly antici-pated Sunday meeting broke littlenew ground as President BarackObama and congressionalRepublicans kept sparring over taxes.In a press conference, Obama calledfor the largest possible deficit-reduc-tion deal. For details, see

After the bell, Alcoa, often viewedas a US economic bellwether, posted a big jump in second-quarter profitpartly due to soaring prices for alu-minum and its raw material alumina.

The Dow components stock rose 0.3per cent to $15.96 in late trading.

CONCERNS over Europes debtcrisis and the global economysent Britains top shares sharplylower yesterday, leaving

investors anxious for a strong earn-ings season to kick-start further buy-ing of equities.

The UK benchmark index endeddown 61.42 points or one per cent at5,929.16, its lowest close since 29June, extending a 1.1 per cent dropfrom the previous session when a dis-mal US jobs report dented optimismthat the economy was coming out ofa soft patch.

Banks, typically large holders ofEuropean government debt, weighedheavily on the index on fears Italycould be the next casualty of theEurozone debt crisis, and afterreports that said some EuropeanUnion leaders were consideringallowing a selective default by Greece.

The cost of insuring Italian debtagainst default jumped to a recordhigh.

Its another risk-off day continu-ing from Friday where obviously thepayrolls are still figuring on every-ones minds, and then youve got

deep concerns towards Italy potential-ly being dragged into the sovereign

deb

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