Mondi and DS Smith Plc have reached an agreement in principle on the key financial terms for a potential all-share merger that would create a leading European player in sustainable packaging.

Under the proposed deal, Mondi shareholders would own 54% and DS Smith shareholders 46% of the combined entity. Based on Mondi’s share price prior to deal talks, the terms imply a value of 373 pence per DS Smith share – a 33% premium to its undisturbed price.

DS Smith shares shot up by 7% while Mondi slipped 1.5%.

“Mondi announced a month ago that it was contemplating a bid for DS Smith, to bring two of Europe’s leading packaging businesses together. Last night the two companies announced they had agreed terms that will see the pair merge in an all-share deal where Mondi shareholders will end up owning 54% of the enlarged group and former DS Smith investors holding the balance,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.

“The groups say they can see substantial synergies from combining operations, but bizarrely at such a late stage in a deal’s progression, they have not yet quantified these synergies. That will come later, and in the meantime investors in both companies are left to figure out if they are going to be sufficient to merit DS Smith investors giving up control of the group and Mondi investors roughly halving their exposure to the assets they currently own. This does not look like a deal-making trend that is likely to catch on.”

Mondi said in a release the two companies’ geographical footprint was complimentary and saw cost benefits throughout the supply chain.

Another day, another London-listed company is snapped up and taken private. This time, wealth firm Mattioli Woods has received interest from investment management company Pollen Street Capital.

Mattioli Woods plc, a UK wealth manager and employee benefits provider, has agreed to be acquired by Pollen Street Capital Limited, in an all-cash transaction valuing the company at approximately £432 million.

Mattioli Woods is the latest UK company to be taken private after a string of deals, including Nationwide’s move to acquire Virgin Money and Wincanton’s takeover by a competitor.

Pollen Street said they believe the company will benefit from private ownership and is attracted to Mattioli Woods’ “vertically integrated, holistic model with its high-quality brand and client base’. An attractive valuation would have also played a part.

There has been a wave of consolidation in the wealth management markets in recent years, and a well-run business such as Mattioli Woods has provided too good an opportunity for Pollen Street Capital to let it pass them by.

Mattioli Woods shares were 32% higher at the time of writing.

“The Mattioli Woods Board is pleased to announce its unanimous recommendation of this cash offer for Mattioli Woods, which not only delivers attractive value to Mattioli Woods shareholders in cash, allowing them to crystallise the value of their holdings, but also provides significant opportunity for clients, employees and wider stakeholders,” said Anne Gunther, Non-Executive Chair of Mattioli Woods.

“Mattioli Woods is recognised as a leading advice-led wealth manager and enjoys both direct distribution through its consultancy team and intermediated distribution through certain third parties.”

Housebuilder Persimmon will report earnings next Tuesday and is expected to confirm a sharp drop in sale rates during 2023.

This will not be ‘new news’ for investors expecting a soggy set of results from the housebuilder who has been dogged by higher mortgage rates.

“Persimmon’s already told investors that its full-year sales rates fell around 16% in 2023, as high interest rates and the removal of the Help-to-Buy scheme have weighed on affordability. As a result, total completions of new homes were reduced by around a third, to 9,922,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“These lower volumes, coupled with build-cost inflation, mean operating profit margins are set to roughly halve, to around 14%, when Persimmon reports full-year numbers on Tuesday.

“There was a “strong improvement” in fourth-quarter sales rates and investors are keen to see if this uplift has carried over to the new year. Markets expect operating profits to grow at double-digit rates to around £398mn in 2024. And with early signs that challenges for buyers are easing, there will be a focus on where Persimmon lays the marker for its 2024 guidance.”

A poor 2023 is already factored into the Persimmon share price and investors will pour over the release for any signs of improvements in the early months of 2024.

Guidance for 2024 will likely be the most important element of Persimmon’s upcoming full-year results. Any upside revisions to completion expectations will be very well received.

The FTSE 100 clawed back early losses on Thursday as initial weakness attracted bargain hunters to cyclical sectors. Ex-dividends played a part in the softness on Thursday, with HSBC, Standard Chartered and Rio Tinto trading without the rights to the latest dividend.

The FTSE 100 was trading 0.2% higher as the US session got underway on Thursday.

Rentokil Initial stormed to the top of the leaderboard after revealing the synergies achieved by the acquisition of Terminix.

“It’s far from glamorous but someone has to do it’ may well be an argument for the utility of Rentokil Initial in the eyes of investors and in fairness it’s not far wrong. The company has acquired well, with synergies from the Terminix purchase proving to be even more fruitful than originally expected and a fair chunk of cash on the sidelines to continue expansion,” said Adam Vettese, analyst at investment platform eToro.

Rentokil Initial shares were the FTSE 100 top gainers rising over 17%.

Spirax-Sarco was another notable gainer after the engineering group, which was ‘well positioned for a return to growth in 2024’. Revenue grew 4% in 2023 due to acquisition contributions, but operating profit fell 11%.

Ocado gained 4% as the food technology firm traded on broader market sentiment after announcing its first profit in some years last week.

ECB Rate Decision

The FTSE 100 extended gains after the ECB held rates steady but signalled it is not amazingly far away from cutting rates. The European Central Bank said it saw inflation rates falling and suggested that supporting the economy would be a priority.

🇪🇺 ECB on hold, staff projections revised lower as expected, including core back to 2% by 2026.
Broken record but a forward-leading central bank with a tight policy stance, forecasting inflation back at target in 2025, should cut rates now as real rates move higher. pic.twitter.com/QgqibzDLHG

— Frederik Ducrozet (@fwred) March 7, 2024

The market reaction to the ECB’s comment saw bond yields fall and stocks rise. While the ECB held off providing forward guidance on rates, there is a growing sentiment they may be the first Western major central bank to reduce borrowing costs.

“The ECB’s upcoming rate decision on April 11 may shed further light on their stance, with potential implications for investor expectations. However, with inflation still hovering above target levels and uncertainties regarding wage growth, the ECB appears poised to tread cautiously in its monetary policy approach,” said Richard Flax, Chief Investment Officer at Moneyfarm.

Investors may expect equity bulls to bid up major indices if the BoE and Federal Reserve make similar sounds in their upcoming meetings.

Virgin Money shares were sharply higher on Thursday after the lender announced it had received a formal takeover offer from Nationwide and agreed on preliminary terms.

The deal values Virgin Money at £2.9bn, a 38% premium to Virgin Money’s undisturbed share price as of 6th March 2024.

Under the proposed terms, Virgin Money shareholders will receive a total of 220p comprising of 218p cash consideration and 2p for Virgin Money’s normal dividend calendar.

Virgin Money shares were 36% higher at the time of writing.

The deal today represents another example of a UK-listed company being snapped up by a private competitor clearly seeing more value in the shares than in public markets. 

What’s remarkable about today’s deal is the acquirer, Nationwide, is a naturally conservative building society owned by its members. For this organisation to deploy £2.9bn capital to take over its competitor, it must see deep value in the stock.

It’s also notable in terms of the timing. The lending market has faced two years of falling demand as mortgage rates increase. With the Bank of England likely to cut rates in the coming months, Nationwide may see a pick up in the market and feel now is the time to make its move.

“It’s an interesting time for big deals in the mortgage sector. We’ve seen tentative signs that the property market is regaining strength after a difficult few years hampered by a high interest rate environment which made mortgages less affordable,” said AJ Bell investment director Russ Mould.

“While mortgage rates have crept back up in recent weeks, the general consensus is that the Bank of England will start cutting base rates later this year and that should hopefully benefit those looking to move home or get on the housing ladder.

“Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry, albeit we’re still in a volatile period until the base rate starts to come down.”

Mould suggested Nationwide are making a well-timed move, given that most deals are completed when valuations are high and corporates are prepared to splash their cash.

“This is slightly unusual as companies often buy rivals at precisely the wrong time – namely acquiring at the top of the market when everything looks good and then overpaying for deals, rather than taking bold steps and acquiring when everything looks bad and valuations are weak,” Mould said.

The UK government are way behind in the polls, and today was an opportunity to win voters over. We won’t know if they’ve been successful in swinging the polls until later this year. We do know, however, that the budget hasn’t upset equity markets.

The FTSE 100 was 0.45% higher at the time of writing and was extending gains.

The London’s leading index was likely more of a relief rally Hunt didn’t say anything to send markets into a tailspin rather than the start of a wave of optimism.

The standout for investors will be the introduction of the British ISA which is having a mixed reception from the investment industry. The balance is probably leaning towards a negative reaction, with some industry experts tearing the scheme apart.

AJ Bell’s CEO has verbally destroyed the concept highlighting major problems with the implementation of a British ISA and whether it can actually achieve its goals.

“Increasing investment into UK companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective,” said Michael Summersgill, chief executive at AJ Bell.

“50% of the money our customers currently invest through their stocks and shares ISAs is invested into UK assets, so this new allowance will have no impact whatsoever on their investment behaviour.

“A tiny minority of people max out their £20,000 ISA allowance each year, but these are the only ones that will see any benefit from the additional British ISA allowance.  In the context of the £2tn+ UK stock market, any additional investment generated by these investors through the British ISA will be a rounding error.

“For most people, the British ISA only adds an unwelcome complexity. People will now have another option to evaluate when deciding which ISA type is right for them.”

FTSE 100 mover

As Hunt’s moves were largely announced before the budget, there was little in the way of market reaction. Housebuilders were flat with the absence of any major support for the property market.

Banks were marginally higher and IAG was the top gainer after a broker upgrade.

However, as Hunt fades into the background, focus will turn back to the US a concerns about the ‘magnificent 7’s’ sell off overnight.

“Overall the magnificent 7 lost $233bn in market value on Tuesday with the only member continuing to defy gravity being advanced chip designer Nvidia, whose shares climbed 0.9%,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

“Nvidia has seen surging demand elsewhere outweigh export restrictions to China and moved to mitigate these with a toned-down AI supercomputer for the Chinese market. Rumours suggest a similar move by rival AMD has hit a regulatory roadblock in getting its lower-powered model approved.”