Markets Today: Housing Market Begins to Calm, Euro Data Disappoints

Companies

Tullow and Capricorn to merge, but analyst questions strategic logic

Two of the UK’s oil and gas midcaps are looking to exit this bull market on stronger footing by teaming up: Capricorn Energy (CNE) – formerly known as Cairn – and Tallow oil (TLW) will merge to become a “big African energy company” that would pay out at least $60m (£48m) a year in dividends.

Capricorn is sitting on a pile of cash after settling the years-long struggle with the Indian government earlier this year. Tullow said in the merger announcement that it would struggle to fund the dividend in its current financial stage, and outlined a potential recapitalization for itself or the combined group to make this possible.

Capricorn shareholders would get 3.8 “new” Tullow shares for every share they own, which would split ownership of the new company into 53% Tullow and 47% Capricorn. The combined company would produce just under 100,000 barrels of oil equivalent per year.

The new company would be led by Tullow boss Rahul Dhir, while Capricorn chief executive Simon Thompson would retire at the end of the deal.

Thompson said the deal would create “significant scale and growth opportunities.”

Stifel analyst Chris Wheaton said the deal did not solve a common problem for the two companies “of what to invest in next”. “We question the strategic rationale for this deal,” he said. Oh

BHP oil spin-off complete – another one in the works?

The largest mining company in the world, BHP (BHP) completed the spin-off of its oil assets and today delivered to shareholders a dividend of A$5.38 (3.07p) per share along with the previously transferred shares of Woodside (AU:WDS). Custodian interests in Woodside will begin trading in London on June 6.

“Our shareholders will now be exposed to the assets of two organizations, BHP and Woodside, each with a very clear direction, strategy and value proposition,” said BHP Chief Executive Mike Henry. “BHP’s world-class portfolio is focused on commodities that support economic growth and have a decarbonization advantage.”

Meanwhile, Citi analysts have proposed another split for BHP: a “bulk” and “metals” split that would see one iron ore and coal business and another own the copper and other metals assets, including the Jansen Fertilizer Project in Canada. Citi suggested that a slowdown in wholesale prices, which have been high for more than two years now, would dampen valuations in the metals sector by the end of the decade. Oh

Wood Group finds $1.9 billion buyer for its advisory division

energy service company Wood Group (WG.) appears ready to eliminate its heavy debt and potentially recoup its dividend after Canadian firm WSP Global agreed to pay $1.9bn (£1.5bn) for the firm’s built environment consultancy division .

Wood’s chief executive, Robin Watson, said the deal would mark a “new chapter” for his business. The company had approached its debt covenants at the end of 2021, standing at 3.3 times net debt to adjusted Ebitda, with 3.5 times the limit. “The primary and immediate use of the net cash proceeds of the transaction will be a reduction in the group’s net debt,” the company said.

The built environment provided just under a quarter of 2021 revenue, making it the second largest after conventional energy. It has 5,500 consultants and 100 offices, mainly in North America.

Wood had announced that the division would go up for sale in January. Next comes a shareholder vote and regulatory approval. Oh

Mike Ashley buys Missguided from administration

Mike Ashley’s Frasers Group (FRAS) acquired online womenswear retailer Missguided for £20million. The owner and Ashley-controlled retail group, which owns the Sports Direct, House of Fraser and Flannels brands, has acquired ‘certain intellectual properties’ from Missguided Ltd and other related companies Mennace Ltd and Missguided (IP) Ltd, as part of a purchase financed by Capitale Labor Funds. Once the deal is complete, Misguided will be operated by the administrator under a transition agreement for a period of approximately eight weeks. After that, it will operate as a stand-alone business within Frasers.

Michael Murray, Managing Director of Frasers, said: “We are delighted to secure a long-term future for Missguided, which will benefit from the strength and scale of FG’s platform and our operational excellence. Missguided’s digital approach to the latest trends in women’s fashion will bring additional expertise to the wider Frasers Group. Shares of Frasers rose 1.7% this morning. ML

Brickability takes a modular approach

building materials company Brickability (BRCK) buys Sussex-based Modular Clay Products for £4.75m.

MCP’s products include brick slips and facings used in modular buildings, including homes, schools, healthcare and recreation buildings. The company made a normalized cash profit of £1.3m on sales of £10.5m last year. Brickability is paying an initial amount of £3.33 million in cash, with the remainder contingent on the company achieving three-year earn-out targets. He expects the deal to be “immediately earnings accretive”.

Broker Shore Capital said it believed the company was “undervalued by the market” and its potential was not reflected in its current valuation, which is around 9x expected earnings. With full year results expected later this month, we maintain our grip. FM

A stagecoach buyer raided by the police

An almost complete takeover operation between Diligence (CGS) and German asset manager DWS could face further scrutiny, after DWS offices were raided by police on greenwashing charges.

In March, Stagecoach reached an agreement with DWS on a cash offer which valued the transport company at £595million. The offer represented a premium of around 37% to the closing price of Stagecoach stock on March 8 and sent the shares higher.

The offer was declared unconditional on May 20.

However, DWS announced this morning that its chief executive, Asoka Wöhrmann, would step down immediately after the June 9 annual general meeting. This follows reports that 50 German police officers raided the offices of DWS and its majority owner Deutsche Bank as part of an investigation into allegations of greenwashing.

A fund managed by DWS Infrastructure outbids National Express (NEX) for the purchase of Stagecoach earlier this year. It is unclear, however, if today’s developments will impact the deal. JS