The Week Ahead (18-22 May): takeover frenzy, macro uncertainty

For anyone doubting the value on offer in UK markets, this week’s takeover frenzy might provide pause for thought.

The boards of FTSE 100 testing and certification company Intertek (LON:ITRK) and FTSE 250 healthcare group Spire Healthcare (LON:SPI) both indicated that they would recommend recent takeover offers if they were made firm. 

On Thursday, ingredients specialist Tate & Lyle (LON:TATE) received a cash offer from US-based trade rival Ingredion (NYQ:INGR). Although Tate’s board has not yet said whether it would support the deal, I suspect they might do.

Also on Thursday, the Financial Times published a detailed article suggesting Legal & General (LON:LGEN) could become a bid target for US asset management giants.

In each of the first three cases these offers appeared to provide an attractive premium to the undisturbed price prior to the bids becoming public:

• Intertek’s board would be prepared to support a £60 offer from Swedish private equity group EQT (59% premium)

• Spire Healthcare’s board has indicated they would support a 250p per share offer from long-time shareholder Toscafund, even though Toscafund opposed a 250p offer back in 2021! (67% premium)

• Tate & Lyle: the former sugar firm’s board has not yet commented on the 595p per share offer from US rival Ingredion, but the two companies are in discussions (59% premium)

But a broader look at the share price charts for each company suggests an element of opportunistic timing:

Will we see more takeover offers over the coming weeks? I wouldn’t bet against it. With UK investors seemingly reluctant to back domestic businesses, private buyers will inevitably step in where they see value and opportunity.

Geopolitical uncertainty doesn’t seem to be deterring investors from deploying fresh powder. That’s probably just as well, because the macro situation remains uncertain both at home and in the Middle East.

Here in the UK, Labour rivals to Prime Minister Keir Starmer continue to manoeuvre against him, with the focus currently on Manchester mayor Andy Burnham. 

However, bond investors view Starmer and Chancellor Rachel Reeves as more disciplined on spending than Burnham. As a result, they’ve pushed up UK government borrowing costs in recent days, with the 10-year gilt yield now (un)comfortably above 5%:

Elsewhere, news from the Middle East tailed off somewhat during President Trump’s trip to China. While he was there, China’s Xi Jinping is thought to have stressed the importance of achieving a peaceful settlement and reopening the Strait of Hormuz.

The commercial implications of failing to resolve the conflict could be significant for China and the US. The cost to the US public purse of continuing the war could also be high; we learned this week that the war is thought to have cost the US $29bn so far. That’s about $83 for every person in the USA.

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Economic News

Data points on the UK calendar next week include unemployment, inflation and house prices. Over the pond, it’s a similar story with housing market data and unemployment both set to hit the wires.

Other points of interest may include the latest oil and gas storage levels in the US, together with the latest rig count from US fossil fuel producers who have so far remained stubbornly (wisely?) unwilling to splash the cash on ramping up production.

This strategy has been very profitable for producers, but global stockpiles are coming under pressure. It will be interesting to see if US inventories are starting to show any sign of weakness ahead of the summer driving season.

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Company news

Next week may see some results of interest from UK big caps. Several high-profile victims of the AI/SaaS sell-off – Experian, Sage and Autotrade – are due to report results. Elsewhere, Irish energy and distribution group DCC is also due to report.

Moving down in size, results from publisher Bloomsbury Publishing are likely to be a popular choice for coverage in the Daily Report, following the company’s upgrade to guidance earlier this year. Concerns remain (for me, at least) that this business is overly dependent on two or three authors, but there’s no doubt it has achieved much in recent years and has some attractive qualities.

Scheduled news from US companies is limited next week, but AI chip giant Nvidia is due to report Q1 earnings on Wednesday.

Enjoy the weekend!

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Here’s a summary of what’s expected next week.

Economic Calendar

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Companies Reporting

Disclosure: Roland owned shares in Sage and DCC at the time of publication.