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“So much for the Santa rally – the market has taken a tumble after US President Donald Trump assumed the alter ego of Tariff Man and poured cold water over hopes of a US/China trade war truce. Brexit concerns have also been thrown into the mix with ongoing doubts that UK Prime Minister Theresa May will get her Brexit deal approved in parliament next week. “Key fallers on the FTSE 100 – which fell back under the 7,000 level – included banks, insurers, oil producers and miners. European markets were also in the red, including a 1.3% decline in Germany’s DAX index. This followed a poor session on Wall Street last night where the S&P 500 fell by 3.2%,” says Russ Mould, Investment Director at AJ Bell.
Stagecoach
“It could be the end of the line for Stagecoach’s ownership of Megabus and CoachUSA/CoachCanada in North America after it flagged the potential sale of its non-UK operations.
“The North American business has been struggling with profit below the company’s expectations. Competition has been fierce and staff and fuel costs have been going up, leaving Stagecoach in a difficult situation.
“Some of the issues include a national shortage of drivers in the bus and trucking sector which has been pushing up the price companies like Stagecoach have to pay for people behind the wheel.
“The rising oil price earlier this year should have theoretically pushed more individuals to use public transport rather than drive their own vehicles, however the recent sharp drop in the commodity price effectively removes that tailwind for Stagecoach.
“Last year the company sold its 50% stake in the Twin America sightseeing bus service in New York after it failed to make a material profit due to difficult economic conditions and ongoing competition.
“Stagecoach’s main focus is now the UK bus and rail sectors, particularly rebuilding credibility in the latter area after the embarrassing loss of the East Coast and South West Trains franchises.
“The decision to cut its dividend looks wise as it tries to emerge from a difficult period, and investors may rejoice at the pledge to moderate spending on its buses. However, there is no getting over the fact that the business has been a miserable performer for some time, as reflected by its share price falling by 60% since summer 2015.”
Shire
“It looks like shareholders in Japanese pharmaceutical firm Takeda have swallowed their concerns about the debt required for a £46bn takeover of Shire and have approved the deal.
“With the former chairman and member of the founding family Kazuhisa Takeda lining up against it, there was no guarantee the deal would go through but a recent £1bn bet by US hedge funds that it would receive the necessary stamp of approval gave some indication of the way the winds were blowing.
“Progress is likely to be swift from here on in, assuming Shire shareholders also vote to approve the transaction later today, with completion expected early in 2019.
“Whether this proves a smart move on Takeda’s part is open to debate. Sometimes deals this large gain a momentum of their own with management afraid to go back on a plan for fear it will undermine their credibility.
“A ruling from European regulators means one of Shire’s potentially lucrative treatments will have to be sold off to address competition concerns, although the acquisition is still expected to make Takeda one of the world’s top 10 drug makers.
“Shire has endured a volatile few years but this takeover arguably dilutes the diversity and richness of the FTSE 100 index in the same way as earlier bids for technology champion ARM and pay-TV giant Sky. UK firms have been vulnerable to foreign buyers thanks to the Brexit-inspired weakness in sterling.”
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