Category Archives: The In & Out

Channel hopping!

According to Carillion, the revised takeover approach for Balfour Beatty offers a 36 per cent premium. Yet this sweetener depends on the 600m new shares you would create having the same market price – 337p each – as 430m now in issue. But it looks as if services group Carillion is actually offering a premium of around 12 per cent to the price for Balfour shares before merger discussions became public. This consists of a preferential share of the merged group – increased from 56.5 to 58.3 per cent on Tuesday – and an 8.5p dividend.

Baflour Beatty is right to label Carillion’s approach as “opportunistic”. Balfour is a late cycle business and, right now, it is at the bottom of the cycle. Still, Carillion have a brilliant management team and they are probably right on the synergies that could be achieved. A merger at this stage is unthinkable, leaving Carillion with the option to go hostile and pay for it. Whether or not the company has the financial firepower for such a sizeable acquisition, however, is highly questionable. Shareholders In BBY should sit tight and hold out for at least 350p a share. The construction & support sector is overcrowded and consolidation is overdue. Pinkers expects a wave of M&A in the next couple of years. Furthermore, as opposed to highly valued (overvalued?) consumer stocks, this sector is dirt cheap, offering healthy yields at low P/E ratios, even when measured on CAPE.

 So, what next? BBC1 failed. But in the age of ‘channel hopping’, there are more options. What about BBC2, for Balfour Beatty Costain, that is? Rather than returning money to shareholders from the impending sale of management consultancy Parsons Brinckerhoff for some £700m, Balfour could have a tilt at Costain, capitalised at a mere £270m. A nice idea… but even better: BBC3! The combined market cap of Carillion and Costain happens to equal that of Balfour Beatty: Roughly £1.6b. Now, this really would be a ‘merger of equals’ rather than the BBC1 ‘reverse takeover’. And the synergies would be enormous. A ‘no-brainer’, really. However… getting the three parties around a table would be a tall order, indeed. Whatever, one thing is for sure: All three companies are now ‘in play’ and change is in the air. Investors in all three companies should hold their nerve… and sit still! Watch this space! More on this subject: ‘Proof in the Pinkers!’ and ‘Undone!’.

T*** up or F*** off?

“There is a sort of river of things passing into being, and time is a violent torrent; no sooner is a thing brought to sight than it is swept by and another takes its place, and this too will be swept away.” 

Did Roman emperor Marcus Aurelius refer to social media?

Social media is generally defined as “the social interaction among people in which they create, share or exchange information and ideas in virtual communities and networks.”

Both Facebook and Twitter recently announced results and financial analysts are obsessed with pitting one against the other. Facebook’s IPO was a disaster but after a few wobbly weeks, its share price has taken off like a Patriot surface-to-air missile. This in stark contrast to Twitter: The company’s IPO was a textbook triumph but the initial euphoria soon wore off and after the initial bounce it is now down 40% from its all time peak of $73 set on 26 December 2013, inviting comparison with recent rocket launches in North Korea.

However, comparing the two companies on any level is an utterly pointless exercise. So Pinkers will do exactly that… trying to make a point with… well… less!

Facebook and Twitter are two completely different creatures. Facebook is a social network, whereas Twitter is a real-time delivery system, not much unlike a telephone. Facebook, Snapchat et al are great ‘chatty’ animals but Twitter occupies an altogether different niche: The company provides a sophisticated platform for communication, enabling users to connect, broadcast and disseminate information in a novel and intelligent way; the ‘silk’ of human interaction as opposed to the ‘polyester’ of simulated human contact popularised by Facebook and hence by far less subject to changing tastes and fashion. And let’s not forget: What’s in fashion will eventually go out of fashion. Mark Zuckerberg and his team are well aware of this and have taken appropriate action: Since going public, Facebook has been on a massive spending spree, acquiring more than 40 companies for tens of billions of dollars of which most have been so-called ‘talent acquisitions’, bought for the sole purpose of being shut down to keep the nerdy sharks from their door. Facebook is extremely vulnerable to competition but it benefits from ‘first-mover-advantage’ and has built up a financial war chest that should see it thrive for some time yet. It’s longer term future, however, is uncertain: Explosive growth has often proved to be a curse rather than a blessing. The Facebook missile could easily be shot down by the next new kid on the block; the one that will not take the money and run but is driven by a passionate and revolutionary zeal. Twitter is here to stay.

From an investor’s point of view, Facebook is, at least in the short- to medium-term, the by far more tempting proposition. Furthermore, it is highly questionable whether or not Twitter has chosen the right business model, compatible with its original ‘DNA’, by going public.

Pinkers Post covered the subject on 20 Jan 2014, shortly after the IPO: ‘Nutty Twitter?’.

And now back to Marcus Aurelius.