Things can be confusing at the London Stock Exchange. Click on the website and up pops: “Our word is our bond. True in 1801. Just as true today.” Yet the same company “can trace its history back to 1698”. So what happened during the first 103 years? Did it just go around lying to people?
There is, as it turns out, a sort of explanation. The business was incorporated in 1801, but goes back to John Castaing’s lists of market prices, issued from his coffee house just as he was limbering up for the 18th century. No one can recall precisely how good a word Mr Castaing had, not even LSE boss Xavier Rolet, despite having been in charge for a while. Yet it’s so easy to get nostalgic, nowadays, what with Mr Rolet apparently so keen to flog the business to the Germans.
He mentioned it again yesterday, using the full-year results to bang on about his “potential merger of equals” with Deutsche Börse. Yet look at the figures and you’d think the LSE deserves a lot more than a nil-premium merger. Revenues were up 78 per cent at £2.29 billion, boosted by the first full-year from the Frank Russell index business that it bought for $2.7 billion in 2014. Adjusted profits rose 31 per cent to £643 million pre-tax and the dividend was raised by a fifth.
Given that the LSE is at the heart of London’s global financial centre, wouldn’t you expect a minimum 30 per cent take-out premium for such a well-run, successful business? Well, not if you’re Mr Rolet, whose seven-year tenure has taken the LSE from the 17th-biggest exchange business by market value to No 5. For starters, he wouldn’t see it as a German takeover, even if he is making way for Deutsche’s chief Carsten Kengeter. London would have the HQ and Germans account for only 15 per cent of Deutsche’s share register, anyway, even if its investors will take 54.4 per cent of the combined group.
For Mr Rolet, the key question is simple: whether shareholders push for a short-term premium, maybe from Intercontinental Exchange or CME Group, the owner of the Chicago Mercantile Exchange, or take a long-term, strategic view and go for a £22 billion merger to create a business the size of the US duo?
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All will become clearer, the LSE reckons, once it unveils potential synergies thought to be ahead of analysts’ top-end forecasts of £500 million. Yet Mr Rolet would still have to convince investors that, despite competition concerns, such synergies are actually deliverable. In the end, as history shows, a short-term premium usually wins.
Tough at the top
As Don Draper himself put it: “People want to be told what to do so badly that they’ll listen to anyone.” Even Sir Martin Sorrell, as it happens. The WPP boss always knows how to liven up a solid, though uneventful, full-year results statement and didn’t disappoint. Making himself heard above the flapping of his trademark grey swans, he invoked the star of Mad Men to caution against “Don Draperish” over-optimism, given all the threats to the global economy.
A pessimistic ad man would be a right oxymoron and there was little in WPP’s 30th birthday figures to be gloomy about: a fifth year of record profits and the full-year dividend up 17 per cent. Yet Sir Martin spends enough time with company bosses to sense the prevailing mood and has spotted an increasing reluctance to take the risks on which economic growth depends.
He finds that “tepid GDP growth, low or no inflation and consequent lack of pricing power” have led to “a focus on cutting costs to reach profit targets, rather than revenue growth”. No big surprise, either, given the jitters over which way the Fed will next jump, Brexit and the oil price, something that may have boosted consumer spending but also has decimated the oil sector on which so many jobs depend.
Yet Sir Martin may be on to something else, too, all the more telling from a man who has been running WPP since 1986. He notes that the average “life expectancy” of chief executives is about six to seven years, and only four to five for finance chiefs. As he puts it: “No wonder conservatism rules.” The £20 billion WPP might be a useful example of the opposite approach.
Wages hold key
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Fridays are never the same without a nice bunch of non-farm payrolls. And who could have complained about yesterday’s? An extra 242,000 jobs beat forecasts and assuaged concerns over a global slowdown. Yet there was enough to worry about on the wage front to cut the risk of another rate rise at the next Fed meeting in less than a fortnight.
That was just the mix to give a modest boost to the US stock market, which is now close to clawing back this year’s losses. Even so, the 0.1 per cent fall in average hourly earnings in February told a story just as familiar over here: that many Americans are yet to see the benefits of a recovering economy. There are myriad theories as to why, but also a possible political ramification for this election year. Maybe they, too, are the disaffected voters turning to those populist wannabe presidents Donald Trump and Bernie Sanders. Not that either of them has the answer.
Read Adair’s mind
Finally, at least one member of the Petroceltic board has made up his mind what to do with Worldview Capital Management’s 3p-a-share bid: the chairman Robert Adair. His Skye Investments vehicle, which holds 19.2 per cent of the shares, has announced its “firm intention not to accept the offer”, news that lifted the share’s price by 10 per cent to 7½p. He’s not got a blocking stake, but his rejection does raise another issue: what’s his alternative?