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LONDON MARKET CLOSE: London stocks fall despite M&A impetus

Equity prices in London fell on Wednesday, as stocks struggled to find their feet amid rising US Treasury yields.

There was also a flurry of M&A news threatening to hog the spotlight. The prospect of a mega mining merger between BHP and Anglo American was ruled out, though Royal Mail owner International Distributions Services has agreed to a takeover.

The FTSE 100 index ended down 71.11 points, 0.9%, at 8,183.07. The FTSE 250 slumped 268.93 points, 1.3%, at 20,436.34, and the AIM All-Share eased 8.09 points, 1.0%, at 800.27.

The Cboe UK 100 ended down 0.9% at 816.36, the Cboe UK 250 fell 1.3% to 17,935.32, and the Cboe Small Companies was down 0.4% at 16,807.70.

In European equities on Wednesday, the CAC 40 in Paris fell 1.5%, while the DAX 40 in Frankfurt lost 1.1%.

In New York, the Dow Jones Industrial Average was down 1.0%, the S&P 500 lost 0.7% and the Nasdaq Composite fell 0.5%.

Robust US Treasury yields hurt stock market appetite. The two-year Treasury yield spiked as high as around 4.99% this week. The 10-year yield sat at around 4.62% around the time of the closing bell in the European equity market, its loftiest level since early-May.

The spike in Treasury yields, driven by robust US data, supported the dollar.

The pound was quoted at $1.2710 late on Wednesday afternoon in London, down compared to $1.2768 at the equities close on Tuesday. The euro stood at $1.0811, lower against $1.0855. Against the yen, the dollar was trading at JP¥157.56, higher compared to JP¥157.09.

Capex.com analyst George Pavel commented: ‘The greenback is supported by a consistent and notably hawkish stance from Federal Reserve officials. For instance, Minneapolis Fed President Neel Kashkari has advocated for postponing interest rate cuts until significant inflationary improvements are observed and has even suggested potential rate hikes if inflation persists.

‘This sentiment was further strengthened by more positive economic data, which included robust consumer confidence. A slew of economic indicators could bring volatility to the dollar, starting Thursday with the US GDP data and the awaited personal consumption expenditure index later. The dollar could see some pressure if GDP data continues to slow down.’

Eyes are now on Friday’s core personal consumption expenditures index.

The numbers are expected to show that the core personal consumption expenditures index, the Federal Reserve’s preferred US inflation gauge, rose 2.8% year-on-year in April, the same pace of growth as in March.

In London, there was a slew of M&A developments for investors to digest.

BHP just before the closing bell ruled out making a firm offer for smaller mining peer Anglo American, as its attempts to ‘grow the pie of value for both sets of shareholders’ were rebuffed.

BHP Chief Executive Officer Mike Henry said: ‘We were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive.

‘We remain of the view that our proposal was the most effective structure to deliver value for Anglo American shareholders, and we are confident that, working together with Anglo American, we could have obtained all required regulatory approvals, including in South Africa.’

Anglo American had rejected an extension to BHP’s ’put up or shut up’ date. Last week, the Melbourne-based miner’s third £34 billion takeover proposal was rejected by London-based Anglo American.

BHP offered 0.8860 of a BHP share for each Anglo share. The all-share offer by BHP required Anglo American to move away from its operations in South Africa and complete two demergers of its shareholdings in Anglo American Platinum and Kumba Iron Ore.

Earlier this month, to fend off the BHP approach, Anglo unveiled a new ‘radical’ strategy that will see it keep copper and iron ore assets, while getting rid of platinum and diamond businesses.

BHP closed up 0.8% on Wednesday in London, while Anglo American shed 0.8%.

Royal Mail owner International Distribution Services shot up 4.1% after it agreed to a £3.57 billion takeover.

The offer has been made through a special purpose acquisition vehicle owned by J&T Capital Partners as and EP Corporate Group as, a subsidiary of EP Investments SARL.

EP Investments is a Luxembourg-based company founded by Czech billionaire businessman Daniel Kretinsky, who also serves as its chair.

IDS Chair Keith Williams said: ‘IDS has the potential to become a leading international logistics player. Both the IDS board and EP are acutely aware of their responsibilities to IDS and particularly to the unique heritage of Royal Mail and its obligations as the designated universal service provider of postal services in the UK.’

The all-cash offer to IDS shareholders includes a payment of 360p per share from the buyers, a final dividend of 2p from IDS in respect of the financial year that ended March 31, and a special dividend of 8p, contingent on the acquisition becoming unconditional.

AJ Bell analyst Dan Coatsworth said the ‘hard part’ is now getting UK government backing for the deal.

‘The big question is which political party is going to be in power to decide, given the general election is only five weeks away. Takeovers often take ages to complete, meaning there is a high chance that Labour will be the one to decide, judging by the latest polls,’ the analyst said.

Also spiking after a takeover pact, Foresight Sustainable Forestry surged 29%.

It said it has agreed to a £167 million takeover by Averon Park, a firm seeking opportunities to commit capital to trading businesses.

Averon Park offered 97 pence per share to the forestry investment trust managed by Foresight Group LLP, a premium of 33% to Foresight’s closing price of 73.0p each on Tuesday.

Foresight Sustainable’s directors consider the terms of the offer fair and reasonable, having been advised by brokers Stifel.

Wood Group fell 2.5%. It confirmed that Dar Al-Handasah Consultants Shair & Partners Holdings has made another cash takeover offer.

The Aberdeen, Scotland-based consulting and engineering firm said this ‘fourth and final’ offer from the Beirut-founded company, which is known as Sidara, is worth 230 pence per share. Wood Group is ‘evaluating the final proposal’, which values it at around £1.58 billion.

The latest tilt was sweetened from the 220p per share third offer Wood Group rejected on Friday.

Sidara has until June 5 to announce its firm intention, or lack thereof, to make an offer, unless John Wood and the UK Takeover Panel consent to an extension.

Brent oil was quoted at $83.50 a barrel late in London on Wednesday afternoon, barely budging from $83.56 late Tuesday. Gold was quoted at $2,339.63 an ounce, lower against $2,359.03.

Thursday’s economic calendar has a eurozone unemployment reading at 1000 BST, before Irish inflation data at 1100 BST and a US gross domestic product reading at 1330 BST.

The local corporate diary has annual results from automotive online marketplace and classified advertising business Auto Trader and bootmaker Dr Martens.

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