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In this week’s Commercial Awareness update we discuss the Standard Life and Aberdeen Asset Management merger, Snapchat’s IPO, the build up to the Budget, Peugeot’s takeover of Vauxhall and the £1 billion Cheesegrater.
1. Standard Life and Aberdeen Asset Management set to merge
A preliminary deal for a £11 billion merger between investment companies Standard Life and Aberdeen Asset Management has been confirmed. The agreement will create the UK’s biggest fund manager with assets worth £660 billion, and will lead to savings of £200 million. The two companies employ 9,000 people and it’s feared the merger will lead to job losses as part of these savings.
Once the merger is complete shareholders of Aberdeen Asset Management will own one-third of the new investment powerhouse, while Standard Life’s shareholders will own the rest. This reflects the market capitalisation (the market value of a company’s outstanding shares) of each – Standard Life at £7.5 billion and Aberdeen at £3.8 billion.
The deal’s completion is still subject to the shareholders of both firms agreeing to the terms of the merger. The markets are reacting positive to this news, which suggests a keenness amongst shareholders. When trading opened this morning shares in Standard Life rose 9%, while Aberdeen Asset Management saw their stock increase by 7%. Both firms have faced difficulties recently and it’s believed Aberdeen’s portfolio of investment in emerging markets has not performed as well due to market volatility. The merger aims to create ‘one of the largest active investment managers in the world’.
Questions to ask yourself… Why is having a greater market share an advantage? Do either firm have a responsibility to minimise job losses?
2. The markets after Trump’s Congress speech
Markets hit new record highs on both sides of the Atlantic as Trump delivered his first speech to Congress on Tuesday. Described as ‘surprisingly presidential’ by The Washington Post, it was more measured than some of his previous speeches since becoming President. Many of the big claims he made during the hour-long address have been questioned by the media, but his commitment to a $1 trillion infrastructure spend and increased national security spending has been welcomed by the markets.
Trump reiterated his commitment increased spending on infrastructure and tax cuts for the middle classes but is yet to give details on how this will be paid for. This didn’t stop the FTSE 100 reaching 7,383, while the Dow Jones passed through the 21,000 barrier just one month after it reached 20,000 for the first time. Last week the markets also reacted positivity to a strong belief US rates will rise on 15th March, allowing banks and finance firms to increase profits on their lending activities.
Questions to ask yourself... Has market confidence been over-inflated since Trump became President? Is this a sign Trump is becoming more presidential?
3. Snapchat’s shares rise 44% on first day of trading
After much media attention, Snapchat made its debut on the New York Stock Exchange last week. Stocks started trading at the pre-set value of $17 on Thursday, but ended the day at $24.48. This gave Snap Inc. a market value of $28 billion, despite the tech company losing over $500 million in 2016. Snap Inc. raised $3.4 billion with this initial public offering (IPO), which it plans to invest in the app and the new Snapchat Spectacles. This IPO is the largest since Chinese e-commerce company Alibaba’s IPO in 2014.
The previous few years have been a quiet period for tech companies floating on the stock exchange, so there were huge levels of excitement on the trading floor on Thursday. The debut draws comparisons to Twitter, which went public in 2013, and many experts have questioned Snap’s sustainability, especially as they are yet to make profits. Snapchat’s rivals Instagram now has similar features to the app and user numbers aren’t growing as fast as they were last year.
Questions to ask yourself… Is Snap Inc. overvalued? Why are less tech companies choosing to be floated on a stock exchange?
4. Peugeot buys Vauxhall
Peugeot owners PSA Group have acquired Opel-Vauxhall from General Motors in a deal worth €2.2 billion (£1.9 billion). PSA’s enlarged group now constitutes a 17% European market share and is the second largest in Europe (behind Volkswagen). Vauxhall employs 4,500 staff at its two UK sites in Ellesmere and Luton, but their owner GM Europe hasn’t made a profit since 1999.
PSA has stated its commitment to Opel-Vauxhall, giving their sites time to reach greater efficiency. It will review performance and jobs/sites will be kept based on performance. Approximately 80% of Vauxhall’s exports are to the European Union, so they’ve performed well as the pound dropped in value and exports became cheaper in the last nine months. However, if the UK was unable to agree a free trade deal with the EU after Brexit, it could lead to a relocation to mainland Europe.
Question to ask yourself… What can the government do to help protect jobs in the car manufacturing sector?
5. What's to come from Hammond’s first budget
Chancellor Philip Hammond is set to deliver his first budget on Wednesday, as reports suggest he will raise taxes to meet spending commitments. Talking on Sunday, Hammond suggested there would be extra spending for social care and extra funds available to those affected by the rise in business rates. Outlining a cautious approach to spending, there’s unlikely to be increased borrowing and any extra expenditure will be covered by raised taxation.
In what is almost certainly going to be the last budget before the UK triggers Article 50, there’s going to be no ‘spending spree’, to ensure Britain has enough in the tank for the coming years. Read next week’s update to see a full breakdown of the budget.
Questions to ask yourself… Should the government continue with measures of austerity? Does the UK go into Brexit negotiations with the upper hand?
6. £1 billion for the Cheesegrater
The tallest building in the City of London has been sold to Chinese investors for £1.15 billion. The 46-floor, 225-metre-high wedge-shaped skyscraper, known as the ‘Cheesegrater’ (officially called the Leadenhall Building) has been acquired by CC Land. The tower was built in 2014 and is currently 50% owned by both British Land and Oxford Properties.
The £1.15 billion exceeds the £960 million the Cheesegrater was valued at in September 2016. Since the Brexit vote, many suggested commercial property values would decline as companies moved away from London. This new deal is an encouraging sign of London’s continuing prominence as a global business centre. The pound has fallen by around 20% against the dollar and many other currencies in the last year, making the UK an attractive proposition for foreign investment.
Question to ask yourself… Is it good to have more foreign investment in London?