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BUSINESS WITH PERSONALITY

US airlinesclinch $11bnmega-merger

THE WORLDS biggest airline will beunveiled this morning after theboards of American Airlines and USAirways voted late last night tomerge the two businesses in an$11bn (7bn) deal.The combined company will have

1,500 aircraft, $39bn (25bn) inannual revenues and employ morethan 100,000 people.

US Airways chief executive DougParker is expected to head the com-bined business, which will seeAmerican Airlines exit bankruptcyproceedings after 15 months.Americans chief executive TomHorton will stay on the board foranother year as non-executive chair-man. Up to $1bn annual savings areexpected as a result of the deal.The merger is set to give American

creditors 72 per cent of ownership inthe combined company and USAirways shareholders the rest. Thecompany will have a board of 12members: four from US Airways,three from American and five to bedesignated by the American credi-tors.As part of the deal, US Airways will

also leave the Star Alliance to join theoneworld global airline alliance, ofwhich American Airlines is already amember along with British Airways.

US Airways will follow through onits agreement with American unionslast year that the combined carrierwould be branded American Airlinesand be based in Fort Worth, Texas,where American is currently based,sources said. US Airways has its head-quarters in Tempe, Arizona.The US airline industry has seen a

spate of consolidation over the lastdecade after United merged withContinental and Delta joined forceswith Northwest.

Vittorio Colao has been on the acquisition trail since a dividend windfall from Vodafones US partner

VODAFONE yesterday became the lat-est telecoms giant to join the return todealmaking, after the firm was linkedto Germanys biggest cable operatorKabel Deutschland.

FTSE 100-listed Vodafone is believedto be discussing a bid for the firm,which had a market capitalisation of5.6bn (4.85bn) before the takeovertalk sent its shares up almost nine percent. Including debt, the group nowhas an enterprise value of8.9bn.

Executives at Vodafone have not yetmade a decision whether to bid andhave not been in contact with KabelDeutschland, but are believed to havestudied the merits of a takeover severaltimes recently.Analysts said a deal could enable

Vodafone to sell lucrative bundles ofmobile, fixed-line and TV services inEurope.The discussions surfaced a week after

a string of blockbuster deals in the sec-tor. Virgin Media agreed a $23.3bn(15bn) takeover by American firmLiberty Global, Dell revealed a $24.4bnbuyout led by founder Michael Dell,and Comcast agreed to take the rest ofNBC Universal for $16.7bn.A bid for Kabel Deutschland would

mark an acceleration in Vodafonesrace down the acquisitions trail, as itlooks to spend some of the billions inlong-awaited dividends granted by US

partner Verizon Wireless.The firm last year paid 1.3bn forCable & Wireless Worldwide, a pur-chase that included more than

www.cityam.com FREE

20,000km of fibre cables in the UK,and snapped up New Zealand tele-coms group TelstraClear for 429m.

Vodafone have said they have a con-vergence strategy that includes M&Aand they have indicated that they areinterested in fixed assets, said EspiritoSanto telecoms analyst Nick Brown.

Liberty Global potentially could coun-terbid, but after the Virgin Media dealit may be a good time for Vodafone topursue a bid.

Chief executive Vittorio Colao saidlast week, after revealing a disappoint-ing two per cent slide in quarterly rev-enues, that Vodafone would look tomake acquisitions to prop up growth.The firm already has around 3.4m

internet customers in Germanythrough its ownership of Arcor, but

stands apart from its European com-petitors in focusing on mobile opera-tions, reducing its ability to offerpackage deals and offload data traffic

onto its own fixed line networks.Espirito Santo noted that a Vodafone-

Kabel Deutschland tie-up couldprompt scrutiny from the Germanantitrust watchdog.

However, analysts at Jefferies said adeal would elicit little regulatory con-cern in our view, not least as it would

create a more viable competitor toDeutsche Telekom.

OUR ANALYSIS OF SIR MERVYN KINGS LAST REPORT

BY JAMES WATERSON

FTSE 100 6,359.11 +20.73 DOW M13,982.91 -35.79 NASDAQ 3,196.88 +10.39 /$ M1.55 -0.01 / M1.16 -0.01 /$M1.34 -0.01

BY MARION DAKERS

VODAFONE MULLS

5BN CABLE DEAL

INFLATION SPECIALISSUE 1,819 THURSDAY 14 FEBRUARY 2013

GADGETS TOWATCH OUT FORSee Page 30Allister Heath p2, News p3, The Capitalist p15 and Andrew Sentance in the Forum p26

BOTTOMLINE: Page 9, DEALS:Page 7

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from 31/12/12 to 27/01/13 is 127,008

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[email protected]

Follow me on Twitter: @allisterheath

Hedge funds win big on yen betsHedge fund giants have made billionsbetting against the yen in recent months,marking a return to form for some blue-blood investors that stumbled after thefinancial crisis. Managers who speculateon economic shifts by trading currencies,bonds and derivatives have reaped theirbiggest gains in years trading on theJapanese currency.

Tax avoiders face Whitehall banBig companies face being banned from

bidding for major government contractsunder rules aimed at clamping down onaggressive tax avoidance by some ofWhitehalls most important suppliers.Companies will have to sign a declarationthat they have not fallen foul of wide-ranging tax avoidance rules in the past 10years before bidding for governmentcontracts worth 2m or more.

SEC to launch anti-fraud RoboCopThe US securities and exchangecommission is deploying an innovativecomputer tool designed to automaticallytrigger alerts over suspicious accountingat publicly traded companies.

Longer contracts halt phone g rowthSales of mobile phones worldwide havegone into reverse as the industrys drivetowards longer contracts has reduced theneed constantly to upgrade a handset.About 1.75bn were sold last year almost 2per cent lower than in the previous year.

Bic makes more disposable incomeBic, the maker of disposable pens,lighters and razors, announced a 10.6 percent rise in net profit yesterday, lifting thefigures for 2012 to 263.1m.

Standard Life to buy Newton armStandard Life is in exclusive discussions tobuy Newton Investment Managementswealth management division for up to90m. The sale, of Newtons 3.5bnwealth portfolio, could be announcedimminently.

AgustaWestland faces uncertaintyYeovil-based helicopter manufacturerAgustaWestland was facing uncertaintyyesterday after the Indian governmentthreatened to cancel a $750m (482m)order because of bribery allegations.

Apple loses Brazilian rulingBrazilian regulators yesterday rejectedApple Inc.'s request to register the iPhonename in that country, setting up apotentially costly legal dispute in one ofthe world's fastest-growing smartphonemarkets.

Barnes & Noble warns on NookBarnes & Noble Inc. said on Wednesdaythat its Nook business will perform worsefor the fiscal year ended April 27 thanforecast as recently as early January.

2 NEWS To contact the newsdesk email [email protected]

IF you have lots of debt, own ahome in London with a mortgage,are employed and hope that yourwages will rise, you may be one of

the great winners of our age. If youare self-employed, work in the privatesector, have lots of savings and havelimited control over your income, you

are fast becoming one of the losers.That, in a nutshell, are the conclu-sions to be drawn from devastatingdata showing the extent and distribu-tion of falling real wages in the UK and the Bank of Englands dramatic,semi-explicit admission that inf lationis now being allowed to rip. Prices willcontinue to rise above the target, withthe Bank blaming all sorts of factorsapart from themselves. That suitssome borrowers just fine but is a dis-aster for many, who wrongly trustedthe authorities to protect the pound.

Real median wages are now slightly

EDITORSLETTER

ALLISTER HEATH

Stagnant growth and high inflation crippling take home pay

THURSDAY 14 FEBRUARY 2013

lower than they were in 2003. Averageprivate sector wages have been fallingsince 2009; they peaked in 2008 butgains seen in previous years havebeen undone. Male full-time employ-ees resident in London earned 15.54per hour in 2012, compared with16.14 in real terms in 2002 a dropof 4 per cent.

Public sector workers have donebest. Their incomes started to fall wellafter those of their private sectorcounterparts; the drops, when they

happened, were smaller. Between2010-2012, the decline in median realearnings averaged 2.1 per cent peryear for full-time male public sectorworkers (and rose in cash terms,despite the supposed pay freeze) com-pared with a drop of 3.1 per cent peryear for their private sector counter-

parts. Yet again, austerity has beenmuch harsher in the private sectorthan in the public sector.Astonishingly, median self-

employed income has collapsed by 25per cent in real terms from peak and by an almost incredible 33.8 percent in London. So why are the self-employed doing so badly? Theirincome fluctuates much more withthe economic cycle; freelance con-tracts are short-term and can easily berenegotiated up or down very quickly.Their number is up by 367,000 since2008; far more Brits are working for

like overtime getting axed); whendemand rises, their hours rise beforestaff get hired. A final reason may bemeasurement error: income is hardto quantify in the freelance sector.

Unless you are lucky, very skilledand in an industry where productivi-ty is increasing (or a firm that is buck-

ing the trend), brace for years ofmisery and declining living stan-dards. Deals are back in the City with yesterdays mulled bid byVodafone for Kabel Deutschland justthe latest but the financial sectorspartial recovery should not be misin-terpreted for an overall economicrebound. For most people, especiallyoutside of London and its commuterbelt, the grim reality of declining realwages wont go away any time soon.

themselves, an excellent developmentas it increases the flexibility in thelabour market and makes peoplefreer and more responsible for theirown lives. The increase in numbers (ofaround 10 per cent) is one reason forthe decline in median incomes; newentrants probably earn less because

they lost their jobs, couldnt (or didntwant to) find an alternative positionbut found that they could still earnsomething by going freelance.Another reason is the collapse in the

construction industries. Many otherfreelance intensive industries suchas personal trainers are verydependent on the earnings of theirclients; if these fall, the impact on theself-employed is disproportionate.Self-employed people who work forbig firms are the easiest buffer: whendemand falls, their hours getchopped before staff get fired (a bit

WHAT THE OTHER PAPERS SAY THIS MORNING

Find your next step at CITYAMCAREERS.com

REAL wages have sunk to levels lastseen a decade ago, due to stubborninflation and sluggish pay growth.

Including the effects of inflation,the median average UK wage lastyear was even lower than it was in2003, new data revealed yesterday.

The Office for National Statistics(ONS) said that the median hourlywage dropped to 11.21 in 2012 below 2003, when it would havebeen the equivalent of 11.24 whenadjusted to last years price levels.

Real wages peaked in 2009 whenthey reached an equivalent of 12.25per hour, adjusted to 2012 prices yet they have been on the declinesince, partly due to the UKsstubbornly high inflation.

The consumer price indexmeasure of inflation was confirmedearlier this week at 2.7 per cent forJanuary, the 38th straight monththat it has held above the Bank ofEnglands two per cent target.

Yesterday, the ONS figures alsorevealed a stark drop in the medianaverage real wage of the self-employed. Having touched a peak of281 per week in 2006/07, atconstant 2012 prices, it was down to212 last year.

And Londons self-employed haveseen their median weekly pay dropfrom a high of 378 in 2007/08 tojust 250 in 2012.

In April-June 2012, self-employedpeople comprised 14 per cent ofpeople in employment in the UK and18 per cent of people in employmentin London, the ONS report added.

BY JULIAN HARRIS

Real wages tumble to below 2003 levels

MEDIAN HOURLY WAGE FOR 2012

17.33PRIVATE SECTOR

20.22PUBLIC SECTOR

MALE WORKERS IN LONDON

REAL UK WAGES

820122011201020092008200720062005200420032002

10

12

1 4 pe r h ou r

REAL LONDON WAGES

20122011201020092008200720062005200420032002

16

14

12

1 8 p er h ou r

ALL WORKERS IN LONDON

WORKERS IN LONDON WHO ALSO LIVE IN THE CAPITAL

UK

LONDON

REAL SELF-EMPLOYED WAGES

2010/112008/092006/072004/052002/03

400

350

300

250

200

per week per hour

PRIVATE SECTORMEN

PUBLIC SECTORMEN

PRIVATE SECTORWOMEN

PUBLIC SECTORWOMEN

REAL PUBLIC vs PRIVATE WAGES

20122011201020092008200720062005200420032002

18

16

14

12

10

8

MEDIAN HOURLY WAGE AT 2012 CONSTANT PRICES

11.242003

UK

2012

11.21-0.26%

MEDIAN WEEKLY WAGE AT 2010/11 CONSTANT PRICES

3782007-08

LONDONS SELF EMPLOYED

2010-11

250-33.8%

MEDIAN HOURLY WAGE AT 2012 CONSTANT PRICES

15.742003

LONDON*

-0.25%

2012

15.70

*includes workers who commute into London

*ALL GRAPHS SHOW MEDIAN AVERAGE

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GOVERNMENT policies are pushingprices up beyond the control of theBank of England while a lack of sup-ply side policies from the Treasurymeans consumers and firms arebeing given little hope of bettergrowth in future, governor SirMervyn King claimed yesterday.And he added monetary policy is

becoming less and less effective atstimulating the economy further,meaning the government needs tohelp rebalance the economy to pre-pare the country for growth in future.The outgoing head of the Bank

launched the unusually strong attackon the government as he explainedwhy inflation is still running wellabove its target at 2.7 per cent inJanuary, above the two per cent goal and will stay high until 2016.

Sir Mervyn argued green energypolicies are driving up energy prices

Prices will soarfor three more

years says KingBY TIM WALLACE while rising university tuition fees are

having a bigger impact than expected.Between them factors like those add

a full percentage point to inflation,meaning the Bank would have totighten policy unacceptably hard, hit-ting jobs for no good reason, he said.

This makes our job more difficult inthe short run, we have to deal with theconsequences, Sir Mervyn said.

But it would be a mistake to pushup unemployment to compensate fora short term rise in prices.And the Bank predicts it will be at

least another two years before theeconomy grows back to its pre-crisissize, not because of deficit reduction

but because of a lack of reforms.The government should put togeth-

er a package of supply-side reforms toraise future income expecta-

tions and so raise consumerspending today, he argued.The Treasury rejects SirMervyns analysis, arguing ithas kept prices down by freez-ing fuel duty and helped bycutting corporation tax.

ROLLS-ROYCE will today unveil ex-McKinsey boss Ian Davis as its newchairman, replacing Sir Simon

Robertson who will leave the busi-ness after eight years.The announcement will be made

alongside todays year-end resultswhich are expected to show theengineering giant made bumperprofits in 2012, according to SkyNews.

Davis spent 31 years with manage-ment consultants McKinsey, includ-ing six years as managing director effectively chief executive between2003 and 2009.

He is currently a non-executivedirector at both BP and Johnson &Johnson, in addition to work advis-ing Apax Partners and the govern-ments cabinet office.

Meanwhile Rolls-Royce yesterdaysigned a 10-year contract with theMinistry of Defence for the develop-ment of submarines, which will helpsafeguard up to 2,000 jobs in the UKand deliver up to 200m worth ofsavings to the department.The contract, worth around 800m

over the next decade, would helpdeliver cost savings around the pro-vision of nuclear propulsion systemsfor Britains existing and future sub-marine flotilla.

Rolls-Royce to appoint formerMcKinsey boss as new chairman

Sir Mervyn said loosemonetary policy maybe hitting its limits

THE EUROPEAN UNION will this sum-

mer begin talks with the United Stateson producing a free-trade agreementthat would be the biggest such tradedeal in history.

European Commission presidentJose Manuel Barroso made theannouncement after President Obamabacked reducing trade barriers inTuesdays State of the Union address.

Under an outline for the deal, thetwo sides expect it to add 0.5 per centto the EU economy and 0.4 per cent tothe U.S. economy by 2027 equiva-lent to 86bn (55bn) a year for theEuropeans and65bn for the US.The resulting free trade area could

encompass half of world output and athird of all trade. It is hoped that talks which depend upon the agreementof all EU member states and the UScongress can be completed at a briskpace with a deal signed by the end of2014.

If we want to go down this road, wewant to get there on one tank of gasand we don't want to spend 10 yearsnegotiating what are well knownissues and not reach a result, WhiteHouse adviser Michael Froman saidyesterday.

Agriculture is likely to produce mostdisputes, particularly EU farm subsi-dies and the use of genetically modi-fied crops in the US. Other issuesinclude battle over state aid for aircraftmanufacturers Airbus and Boeing.

EU aims to signUS trade dealby end of 2014

BY JAMES WATERSON

CAPITALIST: Page 15

THURSDAY 14 FEBRUARY 20133NEWScityam.com

Ian Davis (above) spent 31 years with management consultancy McKinsey

BY JAMES WATERSON

AND CATHY ADAMS

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THE proposed 1.4bn merger of soft

drinks giants AG Barr and Britvicwas thrown into disarray yesterdayafter a trading watchdog referredthe deal to the CompetitionCommission (CC).

The current terms of the all sharemerger, agreed in November, havenow been shelved after the Office ofFair Trading said the range ofBritvic and Barrs drinks made itsmerger a threat to competition inthe 9bn soft drink market.

Were in the long grass for atleast nine months, Britvicchairman Gerald Corbett saidyesterday, criticising the OFT for itsdecision to refer the merger.

The OFT will release its reportinto the ruling in the comingweeks. Former Britvic chiefexecutive Paul Moody stepped downin anticipation of the merger,which would have

seen Barr bossRoger White takingover. YesterdayBritvic mademanaging directorof Britvic GB SimonLitherland chiefexecutive until theissue is resolved.

Britvic-Barrdeal threatensto fizzle out

BY MICHAEL BOW

THE LONDON Stock Exchange is try-ing to tempt fast-growing tech firmsaway from Silicon Valley by launchinga high growth segment with lessonerous listing rules.The exchange said yesterday that

companies with an annual growthrate of 20 per cent over three yearswill from next month be able to jointhe segment of the main market witha minimum free float of just 10 percent.This compares to the usual require-

ment of a 25 per cent free float.Ensuring that the UKs fastest grow-

ing and most dynamic companieshave access to equity capital is a prior-ity for London Stock Exchange, saidchief executive Alexander Justham.

The High Growth Segment will pro-vide an additional attractive choice,giving these companies a launch padfor further success.The changes, backed by the govern-

ment after months of consultations,should provide investors with easieraccess to the UKs future tech successstories, said Osborne Clarke corporate

LSE tries to turntide on exodus

of tech startupsBY MARION DAKERS law partner Jonathan King.

Its obviously great news for high-growth companies, but its also greatnews for private equity houses who, inlight of the more relaxed free floatrequirement, have an additional liq-uidity channel available to them.

Some market watchers, includinggovernance body Manifest, questionedwhether such a small free floatrequirement would attract long-terminvestors to UK firms.And Deloitte pointed out while tech

firms have abandoned the LSE in thelast three years, smaller companiesalready use the junior AlternativeInvestment Market as a launch pad.

Around 30 tech firms have listed onAim in the past three years, it said,including software group WANDiscosoversubscribed 15m initial publicoffering last year.The scheme mirrors the Jobs Act in

the United States, which last yearstreamlined float requirements forcompanies generating less than $1bn(644m) annual revenues.

Manchester United was criticised forusing the Jobs Act exemptions for its$234m IPO in New York last summer.


MICHAEL ACTON SMITHCHIEF EXECUTIVE OF MIND CANDY

We are proud to be a British company and love beingbased in London. We welcome these new initiatives tomake the London financial markets more attractive tothe many fast growth tech companies that are basedhere.

ERROL DAMELINCHIEF EXECUTIVE OF WONGA

If we want to build Googles, Facebooks, and Apples inBritain, our entrepreneurs need the backing of Britishfinancial institutions. The London Stock Exchange is lis-tening, and I hope these proposals will create a platformfor fast-growth companies with the character and thecapability to go global.

GREG CLARKFINANCIAL SECRETARY TO THE TREASURY

We are delighted that the London Stock Exchange istaking action to ensure that Londons public markets areorganised to help these companies fuel their growth. TheUK has a world leading crop of high growth businesses,and the announcement is an important step in creatingthe right environment for them to IPO in London.

NEIL RIMERCO-FOUNDER OF INDEX VENTURES

We welcome the LSEs proposals to help kick-startLondons IPO market for high growth companies... but thesechanges are not a panacea. In order to give European growthcompanies robust access to public markets, the institutionalinvestment community need to invest in understanding howgrowth models work and how they are valued to develop

conviction about owning pieces of these companies.

CAPITAL IDEA: TECH VIEWS

Simon Litherland fillsPaul Moodys boots

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CREST NICHOLSON made a success-ful return to the stock market yester-day, after the 50-year old Britishhousebuilder completed a listingwhich valued it at 553m.

The company, taken private byScottish entrepreneur Tom Hunter atthe height of the housing bubble in2007, priced its shares at 220p, theupper half of its original range.

As part of the listing, Crest is rais-ing 224.9m, with 169m going toexisting shareholders VardeInvestment Partners and Deutsche

Bank and 56m going to the compa-ny to pay down existing debt.

Stephen Stone, who has been chiefexecutive since 2005 saw the value ofhis shares shoot up to 10m after thelisting. Chairman William Rucker,who is also head of Lazard Londonsaw his shares valued at 8m.

Crest Nicholsons return to marketbrings an end to a painful five yearsfor the group that including tworounds of debt restructuring. US dis-

Crest Nicholsonhails a jubilant

market returnBY KASMIRA JEFFORD tressed investment fund Varde

Partners took majority ownershipafter buying up its debt in 2011.The company, which builds homes

mainly in the south of England, alsoreported last month it returned to apre-tax profit of 62.1m last year, upfrom a 27m loss in 2011.

Norton Rose partner Mark LloydWilliams who worked on the IPO the first on the London StockExchange this year said: Thisflotation is a litmus test for all thosewatching to see if the UK equitymarkets have reopened for busi-ness.

BARCLAYS Capital and HSBC acted asjoint sponsors, joint global co-ordina-

tors and joint bookrunners on CrestNicholsons initial public offering.Derek Shakespeare, a managing direc-tor at Barclays investment bankingdivision, is leading the effort for thebank. He recently advised Redrowfounder and chairman Steve Morgansvehicle Bridgemere and fund managerTosca on their bid to take over thehousebuilder, which was eventuallypulled. He is joined by ChrisMadderson, part of the banks UK origi-nation team and Ben West in the equitysyndicates team.HSBCs advisory team was led by NickDonald, head of equity capital markets(ECM). His previous deals include act-ing as joint bookrunner for minerLonmin on its $817m rights issue inNovember. Simon Cloke, head of diver-sified industries at HSBC and ECMdirector Stuart Dickson worked withDonald on the deal.

Norton Rose, the law firm also acted forCrest Nicholson, with corporate part-ners Mark Lloyd Williams and Tom Vitaleading the team. Norton Rose alsorecently advised the consortium led byMalaysias SP Setia that boughtBattersea Power Station last year.Meanwhile broker Numis is lead man-ager on the listing while Lazard & Co isfinancial adviser to Crest Nicholson.

ADVISERS

DEREKSHAKESPEARE

BARCLAYS

Crest Nicholson holdings limited PLC

4pm8am 10am 12pm 2pm

246248

244

250252254

256

p255.00

13 Feb

STEPHEN Stone was a happy man

yesterday. But he was, after agruelling round of presentations,also a man with a gravellysounding voice.

The chief executive of CrestNicholson since 2005, Stone is thefirst person to lead a company toa main stock market listing inLondon this year and thatsrequired a massive round ofpresentations, lunches and

breakfasts that have clearly takentheir toll on the vocal chords.

Born in the east end of London,Stone never doubted London wasthe best place to float hishousebuilding group, which had

been financially restructured byDeutsche Bank and Varde after aheavily leveraged deal headed bySir Tom Hunter ran into trouble.

I always thought of London asthe place to float, its our home

town after all, says Stone. It wasobvious to float here.

Crest Nicholson, 50 years ofage this year, is based in

Weybridge, Surrey, after all.After seeing shares in the

housebuilding group, in whichmanagement have a 10 per centstake, surge to a premium on thefirst day of conditional dealings,

BY DAVID HELLIERhis confidence in London seemsto have been well placed.

Certainly he reports no lack of

interest in his groups story. Hesaid all the large UK institutionswere interested to hear from him.

Many now think CrestNicholson's success will promptother companies to revisit theirflotation plans. The success ofour float is good for the housingsector and good overall.

With a bit of luck, Stone mightbe able to enjoy a couple of quietdays to leave him in tip-topcondition for another day in thespotlight next week.

Unconditional dealings starton Monday and the housebuilding

boss is in talkswith theLondonStockExchangeaboutopening

themarketthat day.

THURSDAY 14 FEBRUARY 20136 NEWS cityam.com

Stephen Stone, Crest Nicholsons chiefexec, has finished a punishing schedule

No Stone unturned byhousebuilding boss

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SOARING equities markets are giving amajor boost to confidence and shouldlead to a strong recovery in mergers andacquisitions and in share listingsthrough 2013, top investment bankers atDeutsche Bank said yesterday.

Market activity, and thus bank rev-enues, have been falling ever since thefinancial crisis. But Deutsche Bankreports increasing optimism, forecastinga healthy recovery at last this year.

There is a lot of positive feeling nowthat the Eurozone has stabilised andthat we can now move into a growthphase, said UK equity capital markets

head Lorcan OShea.There is a significant pipeline of IPOs

coming through in the UK.Although it is too soon to say what

impact this will have on employment in

Deutsche: Jumpin market means

deals are backBY TIM WALLACE the industry, there will clearly be hopes

that the sector-wide collapse in jobs willcome to an end or even reverse as morebankers are needed to work on the deals.

Deutsche expects mid-sized deals to bethe first to come through as cautiousfirms and investors test the market.Well-trailed deals, like joint venture

minority unwinds delayed by the finan-cial crisis, should also be early beneficiar-ies of the new optimism.A particularly helpful change is that US

investors are increasingly likely to fundactivity in the UK and Europe, thebankers said, as they become more confi-dent that they have now seen the bottomof the Eurozone crisis.

Private equity groups are also expectedto take advantage of the rising tide tooffload assets they have been sitting onthrough the lean years, as well as seekingto raise funds in the improved climate.


TOP 5 GLOBAL M&A TRANSACTIONS IN 2013 TOP 10 FINANCIAL ADVISERS ONM&A TRANSACTIONS IN 2013

13.963 Virgin Media UK Goldman Sachs; LibertyJPMorgan Global

13.909 Dell USA Evercore Partners; Silver LakeGoldman Sachs; PartnersJPMorgan; Lazard

2.703 Copano Energy USA Barclays; Kinder Morgan

Jefferies & Company Energy Partners

2.433 Spirit Realty USA Barclays Cole Credit Property

Capital Trust II

2.157 Slovensky Plynarensky Slovakia Advising sellers: Energeticky aPriemysel Citi; Deutsche Bank; Prumyslovy(49 per cent stake) Morgan Stanley Holding

Deal Value Target Targets dominant Target/Seller Bidder(bn) company geography Financial advisers company

Rank House Value (bn) Deals

1 Goldman Sachs 39.908 19

2 JP Morgan Cazenove 37.38 19

3 Credit Suisse 33.127 15

4 Barclays 24.576 16

5 BofA Merrill Lynch 21.742 14

6 Lazard 18.863 14

7 Evercore Partners 16.123 8

8 RBC Capital Markets 15.016 9

9 LionTree Advisers 14.45 2

10 Citi 8.788 13

GLOBAL M&A ACTIVITY

Year to date 129.547bn 1,521

1

2

3

4

5

6

7

8

9

10

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DEPARTMENT store chain John Lewiscould sack up to 325 managers fromits stores as part of a staff shake-updesigned to take into account thegrowing importance of online sales.

The partnership, which has areputation for looking after its staff,said it was consulting on the need tohave individual departmentalmanagers for sections such aswomenswear and furnishings in itsstore. The changes are being made toreflect the growing importance of itswebsite, which now produces aquarter of total revenue.

John Lewis tosack managers

BY JAMES WATERSON

Blockbuster toclose 164 shops

BY KASMIRA JEFFORD

BRITAINS already fragile high streetwas dealt a fresh blow yesterday afterfashion chain Republic collapsed intoadministration.

Ernst & Young, the business adviso-ry firm, has been appointed as admin-istrator and 150 staff at its Leedsheadquarters were immediatelymade redundant.The retailer, which sells youth fash-

ion brands including Jack Jones andSoulCal, runs 121 stores and employsaround 2,500 staff.

Hunter Kelly, jointadministrator, said

Republic was hit bypoor tradingresults in Autumnand a sudden andrapid decline insales in January.

The impact oncash flows has result-ed in the businessbeing unable tocontinue tooperate out-side of an

Fashion chainRepublic enters

administrationBY KASMIRA JEFFORD

insolvency process, Kelly said.The group will continue to trade

while Ernst & Young try to sell thebusiness as a going concern.

Republicss demise marks the latestin a string of casualties since the startof the year after Jessops, Blockbusterand HMV all entered administration.

US private equity firm TPG boughtthe chain in 2010 for 300m with theaim of doubling the size of the busi-ness to over 200 stores.The firm has twice tried to inject

more cash but the retailer has failed tostem falling sales amid fierce competi-tion and weak demand, particularlyamong young consumers.

The latest accounts show salesdeclined by 2.3 per cent to 177m inthe year to January 2012. Pre-tax profitslumped from 27.3m to 3.2m.

Former Asda boss Andy Bondstepped down as chairman at the end

of January but a spokesper-son said it was not relatedto the company enteringadministration.

Alan Hudson, partner and head of restruc-turing at Ernst & Young, is acting as jointadministrator of the fashion retailerRepublic together with Leeds-based partnerHunter Kelly and director John Sumpton.A licensed insolvency practitioner, Hudsonhas more than 24 years experience of work-ing across restructuring and acceleratedM&A. He also in the past headed up Ernst &Youngs transaction advisory services retailteam in the UK and now has particular focus

working with private equity investors.Some of the major restructurings Hudsonhas worked on include Focus DIY, the hard-ware chain owned by private equity firmCerberus, which appointed Ernst & Young asadministrators in May 2011 and DTZ, theglobal real estate services firm which fellinto administration in December 2011. Itwas then sold to Australian engineeringfirm UGL. In 2011, Hudson acted as jointadministrator and receiver of London land-mark Battersea Power Station, which wasthen sold a year later to a Malaysian consor-tium led by SP Setia and Sime Darby for400m. Meanwhile Hunter, a partner since1996, has worked on a number of insolven-cy appointments including Snackhouse,once one of the UKs biggest snackfoodmakers which collapsed in 2001.

ADVISERS

ALAN HUDSONERNST & YOUNG

Republic began as a men's denim retailer in 1986 under the Best Jeans brand in Leeds

THURSDAY 14 FEBRUARY 2013 cityam.com8 NEWS

Andy Bond, formerchairman of Republic

BLOCKBUSTER, the DVD and gamesrental chain, is to close a further 164

stores the firms administrators saidyesterday, putting a further 800 staffat risk.

Deloitte said the stores will shutover the coming week as part of aphased closure as it continues tofind a buyer for the business and itsremaining 204 stores. The latest cullcomes on top of the 168 storeclosures announced last month. Thechain employed 4,190 staff and ran528 stores at the time of its collapse.

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FRENCH bank Socit Gnrale stum-bled to an unexpectedly large loss inthe final quarter of 2012, financial fig-ures showed yesterday, draggingdown its full year results.The group revealed a management

reshuffle as it streamlines its fivemain business lines into three in andrive to cut costs.

SocGen lost 476m (412m) in thefinal three months of the year com-pared with profit of 100m in thesame period of 2011.And on the year profits fell 67.5 per

cent to774m.

The bank managed to drag downoperating expenses by 3.5 per cent,but operating income fell much moresharply at 22.4 per cent, resulting inthe weaker figure. Part of the hitcame from a 300m litigation impair-ment charge in the quarter, while agoodwill writedown on its NewEdgejoint venture also came in at390m.

Analysts fear more reforms are need-ed before the bank returns to health.

Although management has dealtconvincingly with concerns about

SocGen shakesup top brass

after bad yearBY TIM WALLACE

weak capital adequacy and liquidity in2012, SocGen is still struggling to con-vince investors that it can achieveimproved returns, said EspiritoSantos Andrew Lim.

Deputy CFO Philippe Heim is replac-ing his outgoing boss Bertrand Badre,who is joining the World Bank.

William Kadouch-Chassing will takethe deputy position, while DidierHaugel and Jean-Luc Parer will jointlylead the new international retail bank-ing and financial services division.

Meanwhile investment manage-ment head Jacques Ripoll is leavingthe bank.

SocGens shares dipped 3.57 per cent.

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ITS simply too tough out there, saidthe last official tweet from@republicfashion, announcing thecompanys fall into administration.

With inflation still stubbornly highand the news today of real wages backat 2003 levels, it is certainly a tough

market. Republic is just the latestcasualty in a post-Christmas cull ofthe UK high street, itself following inthe wake of Comet last year and itdoesnt look likely to be the lastcompany to suffer. As such, the UKslisted retailers look like risky bets forinvestors. Yet this is not someindiscriminate, mass-extinction event.Those firms that are failing to tightlycontrol the costs of maintaining abricks-and-mortar store network

while taking advantage of themigration to online shopping aresuffering most. Its tough out there,but its also the survival of the fittest.

CABLE TIESThe purchase of Virgin Media byLiberty Global may be kicking off aconsolidation trend, with Vodafone

now eyeing Germanys KabelDeutschland. However, Vodafonesshares fell on the news, suggesting adim market reception.

Thats perhaps because it meanspouring more money into a Europestuck in the economic doldrums.

Vodafone takes 69 per cent of itsrevenue from Europe, and theEurozone crisis has hit it hard, evenin a relatively strong market likeGermany. More scale and the abilityto bundle products would increaserevenue but at a price and in adeclining market the returns riskbeing less than stellar. Vodafone istied: with so much of its business inEurope it has to make the best of it.But it wont be cheap or easy.

BOTTOMLINE

MARC SIDWELL

High street red in tooth and claw

ING profits dip on tough year of restructuring

DUTCH finance group INGyesterday announced it is cuttinganother 2,400 jobs as it unveileda disappointing fourth-quarterprofit figure.

That brings current headcount

cuts to 7,400 which the bankhopes will save 1bn (865m) ayear by 2015.

The group made 1.434bn inthe final three months of the

year, up 21 per cent on the yearbut below expectations.

Much of that gain was down to

BY TIM WALLACEgroups bailout, giving

1.125bn to the Dutchgovernment in the year apayment which hit theinstitutions core tier one

capital ratio to the tune of20 basis points. ING still has

3.4bn of aid to repay

by 2015.Shares fell 4.04per cent on thenews.

divestments as the group sells offnon-core units such as its UKsavings arm.

On an underlying basisprofits dipped from 664m to184m with the bank tax andlosses on the sale of peripheralEuropean securities

hurting the group.Full-year profitscame in at 3.894bn,down 32.5 per cent.

The slowdowncomes in part fromthe ongoingrepayment of the

ING chief JansHommen is payingback the bailout

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HIGH-FREQUENCY trading business

Getco yesterday revealed an 82 percent drop in profits for the f irst ninemonths of 2012 thanks to poormarket conditions.

The figures the first time thatthe company has made its financialperformance public werecontained in a filing to the USsecurities and exchange made aspart of its reverse takeover of KnightCapital.

Net profits for the nine months to30 September were $24.6m (15.4m)compared to $134.8m in the sameperiod last year.

Total revenue dropped from$719m to $425.3m on the same basis.Worryingly for investors, thisappears to be part of a long-termdownward slide since the start of thefinancial crisis with full-yearrevenues peaking at $1.2bn in 2008.

Getco agreed to buy Knight Capital

last year for $1.4bn after it was badlyhit by an incident last August whenits software malfunctioned, causingmajor volatility on the New YorkStock Exchange.

High-frequencytrading firmGetco struggles

BY JAMES WATERSON

A HEAVY flu and cold season in theUS caused misery for many peoplebut helped Strepsils-maker ReckittBenckiser yesterday report a healthylift in fourth quarter sales.

Reckitt said sales in Europe andNorth America grew three per centafter higher incidences of cold andflu had boosted demand for prod-ucts such as Mucinex decongestant.Total annual revenues rose five per

cent on a like-for-like basis, excludingnon-core pharmaceuticals, to 9.6bn.

Chief executive Rakesh Kapoor saidthis year the group would target rev-

enue growth of between five and sixper cent, including acquisitions anddisposals announced to date.

Reckitt has also been shifting itsfocus to the fast-growing health and

Cough and coldseason boosts

Reckitt figuresBY KASMIRA JEFFORD hygiene sector, with brands such as

Durex condoms and Dettol disinfec-tant, which it said will account for 72per cent of net revenue by 2015 upfrom 68 per cent today.

It is also targeting emerging mar-kets and plans for half of net revenuein its core business to come fromdeveloping markets by 2015.

Reckitt Benckiser boss Rakesh Kapoor has overseen operating profit of 2.6bn for 2012

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Reckitts full-year results came in ahead of expectations, with like-for-likegrowth of six per cent in the fourth quarter better than our 4.2 per cent forecast, withthe outperformance entirely coming in ENA (Europe, North America) wheregrowth was three per cent helped by a favourable cold season.

ANALYST VIEWS

With the positive impact of the strong flu season flowing into the firstquarter...we believe 2013 has started well for Reckitt... We expect the market torespond positively to yesterdays results, whilst recognising some investorsmay be underwhelmed by managements full year targets.

Reckitts results are strong...While our numbers and consensus will clearly

need to come up by around five per cent, we retain our sell recommendation,based on valuation, though we acknowledge the progress that has beenmade in the last year. We still expect competition for Suboxone this year.

HAS RECKITT BENCKISERGOT OFF TO A HEALTHYSTART TO 2013?Interviews by Kasmira Jefford

GRAHAM JONES PANMURE GORDON

DARREN SHIRLEY SHORE CAPITAL

ALICIA FORRY CANACCORD GENUITY


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