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(Alliance News) - Liberty Global on Thursday confirmed it has agreed to merge its Virgin Media business with Telefonica's UK telecommunications arm O2 in a deal worth more than GBP31 billion.
Liberty and Spain's Telefonica each will own 50% of the joint-venture which is expected to be completed in 2021.
The Virgin Media-O2 tie-up will produce a stronger rival to Vodafone Group and BT Group's EE mobile carrier. Separately, BT on Thursday announced it is suspending dividend payments until 2022 and reducing them thereafter, as it reported a 12% annual profit fall.
Liberty and Telefonica labelled their UK broadband and mobile deal an "attractive valuation for both businesses", with O2 valued at GBP12.7 billion and Virgin Media at GBP18.7 billion.
"Joint venture expected to deliver substantial synergies valued at GBP6.2 billion on a net present value basis after integration costs, and equivalent to cost, capex and revenue benefits of GBP540 million on an annual basis by the fifth full year post-closing," Liberty and Telefonica said in a joint statement.
Its a deal that has been teased over recent days, with Telefonica on Monday confirming that it was in talks with Liberty over combining their UK mobile operators.
BT shares were down 8.8% early Thursday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.5% at 5,884.05
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Hang Seng: down 0.7% at 23,972.01
Nikkei 225: closed up 0.3% at 19,674.77
DJIA: closed down 218.45 points, 0.9%, at 23,664.64
S&P 500: closed down 0.7% at 2,848.42
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GBP: up at USD1.2381 (USD1.2349)
EUR: flat at USD1.0794 (USD1.0799)
Gold: flat at USD1,685.39 per ounce (USD1,685.00)
Oil (Brent): flat at USD29.46 a barrel (USD29.41)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday's Key Economic Events still to come
0830 BST UK Halifax house price index
0730 EDT US Challenger job-cut report
0830 EDT US preliminary productivity and costs
0830 EDT US initial jobless claims
1030 EDT US EIA weekly natural gas storage report
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The Bank of England has kept interest rates on hold and voted to maintain its total stock of asset purchases at GBP645 billion even though two Monetary Policy Committee members voted for a boost to the bank's quantitative easing programme. Meanwhile, the UK central bank warned gross domestic product could fall 14% this year. The BoE maintained the Bank Rate at its record low 0.1% in an unanimous vote, while the MPC voted 7-2 to continue with its GBP200 billion bond buying programme, to take the total stock of these purchases to GBP645 billion. Two members preferred to increase the target for the stock of asset purchases by an additional GBP100 billion at this meeting, the BoE said. The bank noted that the stock of asset purchases will hit the GBP645 billion target by the beginning of July at the current pace of purchases. The committee "continues to monitor closely a range of indicators of market functioning". UK GDP is expected to be close to 30% lower in the second quarter than it was in the final three months of 2019. It should recover "relatively rapidly" in the third quarter of 2020 as social distancing measures are gradually lifted, and rise further in the fourth quarter. Under the BoE's "illustrative scenario", UK GDP falls 14% in 2020 but picks up in 2021 to grow 15%, before settling back to grow 3% in 2022.
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UK Prime Minister Boris Johnson will review coronavirus lockdown measures with ministers on Thursday ahead of an expected easing of restrictions next week. The prime minister will chair a cabinet meeting which is likely to focus on what freedoms can be restored weeks after after the "draconian" measures were put in place on society to halt the spread of the virus. Johnson hinted he will announce a limited return to pre-pandemic life in an address to the nation on Sunday, with new measures set to come in as early as Monday. Reports suggest changes could include unlimited exercise, the return of some sports, park picnics, and the opening of pub and cafe gardens – but people would still be required to remain two metres apart. The move could also see the government scrap its "stay home" slogan, and encourage people to wear face coverings on public transport and in crowded places as some return to work, according to the Daily Telegraph.
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China's services sector continued to recover in April, data from Caixin showed, but still remained in contraction territory as new work and export sales continued to drop. The seasonally adjusted headline business activity index rose to 44.4 in April from 43.0 in March, further improving from February's record low of 26.5. Only a score above 50.0 represents expansion so China's services sector remains in decline. The effect of Covid-19 continues to weigh on firms, which registered lower business activity during the month as new business fell for the third time in a row, and export sales declined at the second sharpest rate in the series' history. Despite the challenging climate, optimism towards the 12-month outlook picked up to a three-month high amid hopes of a recovery in conditions once the pandemic situation improves.
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BROKER RATING CHANGES
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HSBC RAISES EXPERIAN TO 'BUY' ('REDUCE') - TARGET 2640 (2100) PENCE
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HSBC RAISES BURBERRY TO 'BUY' ('HOLD') - TARGET 1900 (2400) PENCE
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HSBC CUTS ASTON MARTIN TO 'HOLD' ('BUY') - TARGET 52 (177) PENCE
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MORGAN STANLEY CUTS TUI TO 'UNDERWEIGHT' (EQUAL-WEIGHT) - PRICE TARGET 1.30 (13) EUR
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COMPANIES - FTSE 100
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BT said results for its recently ended financial year were in line with expectations, though it has suspended dividend payments. Revenue slipped 2% to GBP22.91 billion in the year that ended March 31, while pretax profit fell 12% to GBP2.35 billion from GBP2.67 billion. Given uncertainty due to Covid-19, BT said it will not provide a financial outlook for the year ahead. It also has decided to suspend payment of its final dividend. "In order to deal with the potential consequences of Covid-19, allow us to invest in FTTP and 5G, and to fund the major 5-year modernisation programme, we have also taken the difficult decision to suspend the dividend until 2022 and re-base thereafter," said Chief Executive Philip Jansen. BT plans to resume dividends in the 2022 financial year at an annual rate of 7.7p. For the 2019 financial year, BT paid out 15.40p.
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Rolls-Royce said it is prepared for a "prolonged period of uncertainty" due to Covid-19. The jet engine maker expects to deliver up to GBP1.0 billion in cash savings in 2020 in a bid to offset the "significant disruption" caused by Covid-19 to the aerospace industry. Looking ahead, the severity of the disruption is expected to lead to a smaller commercial aerospace market which may take "several years" to recover. Civil Aerospace widebody engine flying hours were approximately 40% lower than the firm's expectations for the first four months of the year. "As a group, we are prepared to endure a prolonged period of uncertainty. Due to the unprecedented reduction in air traffic caused by COVID-19, we are anticipating a significant net cash outflow during the second quarter, and it remains too early to guide on the likely outcome for the full year. Meanwhile, our financial position remains robust and our strong liquidity position provides support for our operations," said Rolls-Royce.
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Anglo-Australian mining firm BHP Group said it has appointed Dion Weisler and Xiaoqun Clever as non-executive directors, with effect on June 1 and October 1 respectively. Weisler's most recent executive role was as chief executive officer of computer and printer maker HP for four years from 2015 to 2019. Clever most recently was chief technology & data officer of Swiss media company Ringier for three years from 2016 to 2019. Prior to that, she was chief technology officer at German broadcasting firm ProSiebenSat.1 Media from 2014 to 2015.
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COMPANIES - INTERNATIONAL
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Anheuser-Busch InBev reported an overall weaker first quarter performance, swinging to a loss as the Covid-19 pandemic hobbled global operations. For the three months to the end of March, the brewer's total loss, including income tax and discontinued operations was USD2.14 billion, compared to a profit of USD3.88 billion in the same period a year before. Earnings before interest, taxes, depreciation and amortisation fell by 14% to USD3.95 billion from USD4.80 billion, worse than AB InBev's expectations of a 10% drop back in February. This was on revenue that declined by 5.8% to USD11.00 billion from USD12.22 billion, mainly caused by a 9.3% fall in total volumes to 119.7 million hectolitres from 131.7 million hectolitres. A hectolitre is 100 litres. Looking ahead, AB InBev said it expects Covid-19's impact on the second quarter of 2020 to be worse than the first quarter, already seen in April volumes falling by 32% due to the closure of the on-premise channel in most markets, as a result of government imposed restrictions.
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Thursday's Shareholder Meetings
RSA Insurance Group
BAE Systems
ConvaTec Group
Onesavings Bank
InterContinental Hotels Group
Melrose Industries
Barclays
Rolls Royce
National Express Group
Priovident Financial
Howden Joinery Group
IMI
Unite Group
Reach
Condor Gold
PureCircle
Rathbone Brothers
Indivior
Equiniti
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By Tom Waite; thomaslwaite@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
