This week saw another mega deal as Shell announced its intension to acquire BG group for £47bn. A deal according to the CEO of Shell they have been considering for some time and felt now was an opportunistic moment to strike. Commentators have remarked that the premium paid is steep; possibly forgetting BG was valued at £16 only 4 years ago by the market. Analysts seem over all to feel the deal offers strategic sense, but it must make the Shell’s business more geared to the movement in the oil price. On that basis having done the deal with the oil price at $50 as opposed to $100 would appear to give the merger more chance of success.
Brokerage houses are now working overtime to assess the next targets, and papers speculating whether this will lead to a wave of takeovers in the sector. We take the view that this deal could be a transformative one for Shell, so why this will then lead to more deals within the E&P sector with less rational is hard to see. Another busy week for investment bankers, it seems likely is that they will continue to be occupied in the coming months.
The Federal Reserve released the minutes from the last FOMC meeting on Wednesday evening. This was the meeting that decided to remove the word patience from the accompanying statement. The tone of the minutes boosted US shares again on Wednesday evening, as it revealed the bulk of the members of the committee were prepared to wait until September before moving to raise interest rates. Recent US employment data has been mixed it is quite possible the unemployment rate, which has been steadily falling over the past few years, may tick up from here if that trend continues.
Greece made its final payment of 460 million euro’s to the IMF; there must have been a lot of raking behind the sofas of the Greek parliament to get the money together. The reality of the situation is that Greece has found 500m euro's so that it can be lent 20bn euro's back. Today probably makes it no clearer what the outcome will be eventually as far as Greece's financial position is concerned. The failure to make this payment could have been the trigger for the exit of Greece from the euro. Reports that Greek ministers recently visited Russia with a view to looking there to raise capital, only raises the stakes one senses.
Alcoa started the Q1 earnings season with an earnings number that was in line with analyst’s estimates, but fell slightly short on revenues. The stock had risen into the numbers but seem to suffer from profit taking in afterhours trading. Overall Alcoa gave a positive outlook on its quarter, the banking sector will be the next in line to report.