UK stocks edged higher on Friday as mega merger news offset a backdrop of disappointing corporate results and an ECB meeting hangover.
Canadian rating agency DBRS reviewing its investment grade rating of Portuguese government debt has weighed on stocks in Europe’s periphery including Spain and Italy. Stocks markets in Europe’s core including France and Germany were slightly higher, reflecting the higher credit rating of their respective country’s debt.
A little political strife at a summit involving UK and EU leaders has seen the British pound tick lower. UK Prime Minister May has objected to the UK ’rubber stamping’ decisions reached at meetings that UK representatives did not attend. Tensions were already flaring as that EU looks at another failed trade deal, this time with Canada.
Shares of British American Tobacco (LON:BATS) are topping the FTSE 100, up over 2.5% on news of its takeover offer for Reynolds American. Shares of tobacco industry peer Imperial Brands (LON:IMB) was also higher. Shares of Intercontinental hotels were propping up the UK equity benchmark after reporting a fall in revenues in the third quarter.
BAT is to pay $47bn for the 57.8% of Reynolds that it doesn’t already own, a 20% premium. It is another effort within the tobacco industry to consolidate in the face of slowing demand in developed markets. Last year Reynolds bought Lorillard for $25bn. It’s no coincidence that the merger comes just months after the UK instituted plain packaging rules for cigarette packets. BAT’s large stake in Reynolds meant this merger was always on the cards. Low interest rates won’t last forever so BAT’s chief executive Nicandro Durante has decided now was the time to make the move and take advantage of cheap financing. The $56.50 per share off is just above the record high for Reynolds shares reached in June, and given that no formal discussion have jet been had between management, could be rebuffed.
US stocks look set for a mixed open with the tech-heavy Nasdaq benefiting from strong earnings overnight from Microsoft (NASDAQ:MSFT) and PayPal, whilst the Dow and S&P 500 drift lower. Merger talk is also at play in US markets with US-based Reynolds the subject of a BAT takeover approach and reports that AT&T was is discussion with Time Warner for a possible acquisition.
USA pre-opening levels
S&P 500: 5 points lower at 2,136
Dow Jones: 29 points lower at 18,133
Nasdaq 100: 10 points higher at 4,842
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