Graeme Wearden 

Pound drops below $1.29 after Brexit vote; factory downturn worsens – business live

Rolling coverage of the latest business and financial news, as home delivery firm Just Eat receives a rival takeover offer
  
  

Just Eat food delivery company.

Finally, the Brexit drama appeared to knock stocks a little lower in New York.

The main US equity indices have just closed in the red, amid Brexit disappointment (and possibly some confusion about another day of arcane parliamentary procedure).

Here’s the closing prices:

  • S&P 500: down 10 points or 0.35% at 2,996
  • Dow: down 33 points or 0.13% at 26,793
  • Nasdaq: down 58 points or 0.7% at 8,104

Edward Moya of trading firm OANDA explains:

US stocks failed once again to reach record territory and investors hit the sell button once Brexit became impossible to be delivered by October 31st. The market was beginning to become a little too optimistic that a Brexit deal was going to get done. Market uncertainty is the biggest bane to the UK economy and until we go through the motions of the general election, we should see the British pound slowly grind higher.

So, with the pound still hovering just below $1.29, that’s all for tonight.

Paul Dales of Capital Economics reckons a disorderly Brexit now looks less likely, as Johnson has ‘paused’ the legislation to bring his deal into law.

He suggests a short delay could boost the pound:

A delay to Brexit now appears the most likely scenario and the chances of a near-term deal have diminished a bit.

A short delay to finalise a deal would not be a blow to economic growth and the pound, especially if it were followed by a deal that would eventually prompt both to rise. In that case, we suspect the pound would climb pretty quickly from $1.29 now to around $1.35.

However, a longer delay for a general election would mean further uncertainty, and probably keep the pound pinned down.

Here’s Naeem Aslam of Think Markets on the pound’s sudden rise, then tumble back below $1.29.

Traders pushed the sterling on the back of the first vote and then traders quickly took the profit off the table as the second vote came in. The short term time table was never going to fly and now we are looking for extension.

The no-deal Brexit threat is off the table and the fact is that if we this drama leads us to election, Johnson is going to be the strongest candidate and highly likely to win the election.

Pound falls after Johnson loses second crucial vote

Newsflash: Sterling has taken a dive back to $1.29, as MPs reject the government’s timetable for the Brexit bill.

The vote isn’t even terribly close -- with 322 MPs rejecting the plan, and 308 in favour.

Obviously this makes a massive hole in Boris Johnson’s plan to leave the EU on 31 October -- the legislation surely can’t be passed in time now.

Johnson has told MPs that the legislation is now ‘paused’, while he speaks to EU leaders about their intentions.

Pound rises after Johnson wins first crucial vote

Newsflash: The pound has rallied back towards the $1.30 mark, after the UK government won the first of two crucial votes on Brexit.

MPs have voted to allow the government’s withdrawal agreement bill to pass to the next stage of the parliamentary process.
They voted by 329 votes to 299; a majority of 30 on the second reading.

But now they must decide whether to approve the rapid timescale to get the legislation into law, or derail Boris Johnson’s plans -- possibly triggering a Brexit extension or an election.

Our Politics live blog has full details:

The prospect of a bidding war helped Just Eat to close 25% higher at 735p, above today’s 710p offer.

The FTSE 100 index has closed 48 points higher at 7,212, up 0.68%.

The weaker pound lifted exporters and multinationals, while trade war optimism also pushed equities higher following positive noises from China and New York.

The pound is clambering back a little as the Brexit debate continues, back to $1.295.

But if parliament rejects the government’s legislative timetable tonight, it could fall back sharply....

The WeWork saga has taken another dramatic twist, with Adam Neumann reportedly signed a $1.7bn deal to step back from the company he founded.

It’s part of a $10bn rescue plan for the troubled office rentals company, led by its biggest investor, Japan’s SoftBank.

My colleagues Julia Kollewe and Dominic Rushe explain:

According to The Wall Street Journal, SoftBank will give Neumann almost $1.7bn as part of the deal – $1bn from the sale of his shares plus a $185m consultancy fee and a $500m line of credit.

The payout comes as WeWork weighs up sacking about 2,000 people. The redundancies are on hold while WeWork refinances but are expected soon.

The emergency refinancing proposals come only two months after Neumann prepared to float the company.

Earlier this year some bankers had predicted WeWork could be worth as much as $65bn, valuing Neumann’s stake at $14bn. However, after the publication of the share sale prospectus investors began to questionWeWork’s business model, its huge losses and Neumann’s sometimes eccentric behaviour.

Some reaction:

Takeaway.com has responded to Prosus’s £4.9bn attempt to gatecrash its merger with Just Eat.

The Dutch food delivery firm insists its offer is superior (even though it’s only worth less in cash terms).

Takeaway spokesman Joris Wilton told Reuters.

“We think our bid is better as it gives shareholders of Just Eat the opportunity to benefit from the advantages of our merger,”

“We also offer shareholders more certainty.”

Ed Conway of Sky News points out that the pound may be on Boris Johnson’s side, for a change....

Here’s a neat chart from Vincent Flasseur of Reuters Breaking Views, to illustrate the Just Eat takeover battle:

Brexit jitters have pushed the UK-focused FTSE 250 index down 0.3% today, as investors worry about further delays and confusion.

But the FTSE 100 is up, as the weakening pound boosts exports. Just Eat’s 25% surge is helping too.

Sterling hit by election worries.

The pound has now fallen below $1.29, down half a cent today, as Brexit anxiety rears up again.

Political journalists are reporting that Boris Johnson will abandon plans to get his Brexit deal into law this week if MPs reject the three-day timetable.

Here’s the BBC’s Laura Kuenssberg:

Rob Powell of Sky News agrees that such a plan could lead to an election, if Labour backed it.

MPs have started debating Johnson’s Brexit bill - you can follow it live, here:

Updated

MPs on the business committee have been uncovering what went wrong at Thomas Cook today, and has some stern words for its auditors.

Committee chair Rachel Reeves told EY and PricewaterhouseCooper that the auditing profession is ‘complicit’ in recent failures.

“I wonder how many more company failures, how many more egregious cases of accounting do we need? We’ve had BHS, we’ve had Carillion, we’ve had Patisserie Valerie and now we have Thomas Cook. How many more do we need before your industry opens its ideas and recognises that you are complicit in all of this and that you need to reform?”

“We can’t rely on you to do the right thing and legislation is needed. We need tougher regulation because your industry is not willing to make the changes needed. Reform is long overdue.”

The BEIS committee also heard that Thomas Cook was a consistent late-payer, meaning liabilities to its suppliers built up on its balance sheet.

Here’s the full story, by my colleague Julia Kollewe:

The pound just dipped again on reports that veteran Conservative backbencher Ken Clarke may oppose the government’s schedule to rapidly approve its Brexit bill this week (explained earlier).

That vote (at 7.15pm UK time) could be very tight -- if Boris Johnson loses, it’s hard to see how a deal can be agreed in time for 31 October.

So, sterling is now down 0.3% today at $1.293, away from the five-month high over $1.30 seen yesterday.

Newsnight’s Nick Watt has heard that Johnson is “minded” to pull the entire Brexit Bill tonight if he loses programme motion.

Updated

Adam Vettese, an analyst at multi-asset investment platform eToro, predicts a bidding war for Just Eat... although buyers should beware, given its recent slowdown in sales.

“The bidding war for Just Eat has added a bucketload of spice to the UK’s already ultra-competitive takeaway market. “While Just Eat has rejected the unsolicited bid from Prosus, it wouldn’t be a huge surprise to see both it and rival bidder, Takeaway.com, return to the dinner table with better offers.

“But this comes at a time when there are big question marks over the UK’s £8.1 billion a year takeaway market. “This week, Just Eat itself warned of ‘softer consumer spending’ – or essentially that people are spending less on takeaways - as it announced a slump in revenue growth compared with the same period last year.

“Whichever party – if any - wins the battle for Just Eat, it will need to commit to substantial investment to make sure it maintains its position at the top of the market.”

Today’s surge has taken Just Eat’s share price back towards the highs seen in July, when Takeaway.com launched its share-based takeover bid.

At you can see, Just Eat has been falling steadily since -- matching the decline of Takeaway.com’s equity.

Just Eat shareholder opposes takeover offer

Just Eat’s 11th-largest shareholder has come out and opposed today’s £4.9bn takeover, claiming it’s not big enough.

Cat Rock Capital Management, which owns 3% of the food delivery firm, claims 710p per share is too low -- even though that’s 20% above last night’s closing price.

Cat Rock says:

“The Prosus offer underscores the significant long-term potential and strategic value of Just Eat’s business. However, unlike the Takeaway.com offer, the Prosus offer does not allow Just Eat shareholders to participate in any future value creation through the equity of the combined businesses.

Prosus should share this future value creation with Just Eat shareholders by paying a fair premium.

Cat Rock certainly isn’t shy about its ambitions-- it thinks Prosus should cough up at least 925p! That would value Just Eat at £6.4bn.

Here’s the logic.

The Prosus offer of 710p per share dramatically undervalues Just Eat’s equity, representing a multiple of only 3.8x fiscal year 2020 consensus revenue before ascribing any value to Just Eat’s valuable stake in iFood in Brazil.

Based on historical transaction precedents and market multiples, Prosus should pay at least 5.0x Just Eat’s fiscal year 2020 revenue, again attributing no value to Just Eat’s valuable stake in iFood. This multiple would translate to an all-cash offer of at least 925p per share.

Today’s CBI industrial trends report really is a stinker, with factory bosses extremely pessimistic about the future:

UK government borrowing is rising faster than planned, in a blow to the government’s claim to be tackling the deficit.

New ONS figures show that Britain borrowed £9.4bn to balance the books in September. That’s £600m more than in September 2018, and the first September year-on-year borrowing increase for five years.

Since April, the government has borrowed £40.3bn, which is £7.2bn more than a year ago.

My colleague Philip Inman explains:

The chancellor has suffered a squeeze on public spending in the run-up to next month’s budget after an increase in borrowing to £9.4bn in September.

A spending upturn across Whitehall departments and the rising costs of the winter fuel allowance for pensioners pushed borrowing beyond last September’s £8.8bn, knocking Sajid Javid’s plans to inject billions of pounds into public services and infrastructure projects in his first budget on 6 November.

Figures from the Office for National Statistics showed borrowing for the first half of the financial year was up by more than a fifth, confirming that a decade-long trend of deficit reduction has come to an end even before the costs of Brexit have taken their toll....

Labour’s shadow chancellor, John McDonnell, isn’t impressed. He questions how prime minister Johnson will pay for promises of new police officers and hospitals, without pushing borrowing even higher...

Back in the City, shares in Just East have jumped 26% to 742p.

That’s sharply above today’s surprise 710p takeover offer from Prosus.

Investors obviously expect Takeaway.com to hit back by hiking its own merger offer [currently worth around 600p], or Prosus to sweeten its own bid. Perhaps both!

UK factories are being hit by a double-whammy of Brexit woes and trade war anxiety, says the CBI:

A combination of ongoing Brexit uncertainty ahead of the 31 October deadline and weaker global growth seems to have played a large role in the worsening of export order expectations.

Notably, the share of manufacturers citing political/economic conditions abroad as a factor to limit export orders in the next three months was at a survey record high.

The CBI also points out that other European manufacturers are also downbeat.... just not as gloomy as in the UK.

UK companies are also slashing their investment plans in the face of Brexit uncertainty, today’s CBI report shows:

UK manufacturing downturn worsens amid Brexit gloom

Newsflash: UK factories order books are shrinking at the fastest pace since the last recession.

The CBI’s latest healthcheck on British manufacturing shows that output and orders are both falling sharply, as Brexit uncertainty hurts the economy.

Factory bosses are also downbeat about future prospects, with firms anticipating output to deteriorate at a slightly faster rate in the three months to January. And business optimism has taken a significant hit, falling at the fastest pace since July 2016.

The CBI says:

Manufacturing output continued to fall in the three months to October.

Total new orders declined at a similar pace to July, driven by falls in both domestic and export orders. Brexit concerns have clearly driven concern about the near-term outlook for exports, with citations of political & economic uncertainty abroad and quota/import licence restrictions spiking to multi-decade highs.

Business sentiment deteriorated at the quickest rate since July 2016 (right after the EU referendum), while investment intentions for buildings, machinery, and training were at their worst since the financial crisis. Stockpiling activities were muted ahead of the 31 October Brexit deadline, with only stocks of raw materials seeing a moderate pick-up in the three months to October.

The CBI asked 256 UK companies whether conditions were better, or worse than usual, in October to calculate a net balance.

  • Manufacturing order book balance: -37, down from -28 in September, the lowest since March 2010
  • Manufacturing export orders balance: -41, down from -32 in September, the lowest since December 2009
  • Business optimism: -44, down from -32 in September, the lowest since July 2016

Analyst: This is a cheeky offer from Prosus

Prosus is trying to take advantage of the fact that Takeaway.com’s all-share offer has fallen in value since it was pitched in July.

That’s because Takeaway.com’s stock has been steadily dropping. So, having initially valued Just Eat at 731p, the latest implied offer for the company prior to the Prosus bid was a more meagre 594p, says Neil Wilson of Markets.com.

He explains:

The more Takeaway.com shares fell after the bid the less attractive the offer and the greater the likelihood of a cash counter bid. Takeaway.com shares are trading +4% on this.

There have been doubts about the Takeaway.com offer being a bit low-ball. The Prosus offer is in many ways very cheeky and even more low-ball – it’s still under the 731p initial offer from Takeaway.com and whilst it has been rejected, will certainly up the ante and could force Takeaway.com into raising its offer as it looks in a weakened position due to the stock’s decline. As we mentioned in July after the news of the Takeaway.com bid, investors were minded to think there was a prospect of a bidding war, with potentially Amazon coming in after the CMA called a halt to its integration with Deliveroo.

Prosus’s surprise takeover bid is online here: Cash offer for Just Eat by Prosus

Just Eat’s rapid rejection is online here: Rejection of unsolicited Offer by Prosus N.V.

Updated

Arash Massoudi of the Financial Times believes Prosus may have to stump up even more money for Just Eat.

Its current offer of £4.9bn is substantially more than the £4bn the firm was worth yesterday -- but may not be enough!

Indeed, Just Eat point out that Prosus’s offer is only 11.7% higher than Just Eat’s “undisturbed price of 635.6 pence on 26 July 2019” -- the day before the merger with Takeaway.com was announced.

Typically, a successful takeover offer would come with a juicier premium.

Just Eat rejects takeover offer

BREAKING: Just Eat has rejected the £4.9bn all-cash offer from Prosus.

In a statement to the City, it claims that Prosus’s proposal “significantly undervalues Just Eat and its attractive assets”, and its prospects on a standalone basis and through a merger with Takeaway.com.

As such, it is giving a thumbs down, telling investors:

Accordingly, the Board of Just Eat unanimously recommends that shareholders reject the Prosus Offer.

Instead, it is still recommending the Takeaway.com offer.

Just Eat also reveals that Prosus has previously offered to pay 670p per share, and 700p, before then making its 710p-per-share proposal. All three offers were rejected.

Just Eat also denies that it hasn’t been constructive, pointing out that it has provided Prosus with some financial information to help it:

The Board of Just Eat has engaged fully with Prosus throughout this process, including providing access to Just Eat management and due diligence information in accordance with its obligations under the Code and with the intention of providing Prosus with sufficient information to put forward an attractive and compelling valuation of Just Eat.

Prosus has not provided such a valuation and proposal to the Board of Just Eat.

Updated

Prosus CEO: Just Eat won't engage constructively with us

Prosus’s CEO Bob van Dijk is discussing the offer now.

He says that Just Eat’s shareholders will appreciate the “merits” of Prosus’s proposal (including its offer of cash, rather than shares in Takeaway.com).

Van Dijk says he hopes to discuss the offer with Just Eat’s board:

We presented this idea to the Board of Just Eat, in good faith, but we have been unable to engage constructively in what we see as a compelling proposition for Just Eat shareholders.

He reveals that Prosus has made “indicative offers” to Just Eat’s board in the past, but without success -- forcing it to go public with its offer today.

Van Dijk also claims that his bid isn’t “hostile” -- even though Prosus is trying to crash the Takeaway.com merger....

Prosus’s surprise takeover bid for Just Eat has caused excitement in the City (and is a welcome distraction from Brexit).

Here’s some early reaction:

This £4.9bn takeover comes only a day after Just Eat disappointed investors with its latest financial results.

Just Eat’s revenue growth slowed to 25% in the third quarter of this year, down from 30% in the first half. Although still pacy, this created anxiety that it is losing market share to rivals.

This prompted Deutsche Bank and JP Morgan to both cut their target prices for Just Eat’s shares this morning, to 670p and 708p respectively. That looked perfectly sensible, until this morning’s bid landed, sending them up to 730p.

Prosus is also pledging ‘substantial investment’ to help Just Eat grow its own delivery arm.

It says:

Based on Prosus’s global experience and having met Just Eat management and reviewed the information provided, Prosus believes that the business will require substantial investment, in excess of that planned by Just Eat management.

Just Eat’s success was built on an ordering website that linked restaurants with customers but didn’t handle deliveries itself. But it has recently branched out into deliveries too, responding to competition from Uber Eats and Deliveroo.

Updated

Prosus is hoping that its offer to pay cash for Just Eat shares will persuade investors to reject the all-share merger with Takeaway.com.

It points out that shares in the sector have slid since the summer:

Since the start of the Offer Period the High Growth Internet Sector and Online Food Delivery Sector have fallen 16.9 per cent. and 15.0 per cent. respectively

Against this backdrop, continued market volatility and macro-economic uncertainty, the Prosus Offer provides Just Eat Shareholders the certainty of an all-cash Offer.

Takeover battle for takeaway firm Just Eat

Breaking: A tasty takeover battle has just broken out for Just Eat, the food delivery firm.

Global investment group Prosus has just launched a £4.9bn all-cash offer for the FTSE 100-listed company, sending its shares up by almost a quarter.

It’s an attempt to snaffle Just Eat from under the nose of Takeaway.com, the Dutch giant which tabled its own takeover bid back in July. That bid was expected to create one of the world’s largest online food delivery firms....but is now obviously in doubt.

Prosus (which is part of South Africa’s Naspers, a tech investing giant), says it hasn’t managed to reach an agreement with Just Eat, so is going direct to shareholders.

Prosus has recently approached the board of directors of Just Eat with a number of indicative proposals to acquire Just Eat. Prosus and the Just Eat board have not managed to reach agreement.

Consequently, Prosus is making this announcement in order to give Just Eat Shareholders the opportunity to consider the Offer.

Prosus’s offer is worth 710p in cash per share.

Shares in Just Eat have rocketed by 24%, to 731p -- as the City anticipates that Takeaway.com may fight back with a new higher bid of its own.

More to follow....

Updated

International investors and business leaders may not be impressed by the latest Brexit developments, fears David Miller, investment director of Quilter Cheviot.

He worries that the sight of Boris Johnson’s government trying to ram the Brexit agreement through parliament in just three days could hurt the UK’s reputation.

Miller says:

“Order, counter order and confusion remain the order of the day.

The sight of government ministers tiptoeing through the minefield of constitutional convention, let alone the law, is unedifying and one that does little to enhance the reputation of the UK as a safe place to do business. The vote on the Withdrawal Agreement Bill will be watched closely by markets who are waiting to see whether Boris Johnson’s will win out in the days preceding the 31st October deadline.

UK hotel industry suffering since Brexit

Julie Palmer, partner at Begbies Traynor, says Whitbread isn’t the only hotel operator suffering from Brexit.

“Our Q3 Red Flag Alert data shows Whitbread isn’t alone, with a 29% increase in significant financial distress in the hotels & accommodation sector since the EU referendum in 2016.

“As demand for accommodation continues to fall and tourism is impacted by Brexit, holding on to its significant slice of the hospitality pie will be challenging.

The pound is starting to dip, and is now down 0.15% today at $1.2940.

It came under pressure after opposition leader Jeremy Corbyn tweeted that Labour opposes the government’s “sell-out” Brexit deal, and will push for a second referendum.

Plumbing and heating deal frozen by Brexit.

Anxiety over Brexit has forced Travis Perkins, the UK builders’ merchants, to halt the sale of its plumbing and heating business.

Travis Perkins is blaming “the current unprecedented level of uncertainty”, which has forced it to pause the sale process of the P&H business “for the time being”.

City firm Liberum thought the sale could raise £400m-£500m. But it appears potential buyers have been reluctant to commit.

CEO Nick Roberts has added that trading conditions becoming “incrementally more challenging through the course of the summer as a result of the on-going market uncertainty”.

That explains why many business groups are very unhappy about the prospect of a further Brexit delay, as it prolongs the economic uncertainty.

Pendragon, the UK car dealer, continues to be shunted by Brexit uncertainty.

The company, which runs the Evans Halshaw and Stratstone franchises, has reported an 8% fall in total sales for the last three months. Revenue from used car sales tumbled by 16.7%.

Pendragon, which is closing 22 of its 34 Car Store branches, says the public are reluctant to splash out on a new or second-hand car until they know how Brexit is resolved.

It told the City:

Whilst the improved performance during the period is encouraging, we continue to expect economic and market conditions to be challenging, with the ongoing uncertainty around Brexit impacting consumer confidence.

The full-year underlying loss before tax remains in line with the Board’s expectations.

Updated

Whitbread: Political and economic uncertainty are hurting

There’s clear evidence this morning that the clouds of Brexit uncertainty are hurting UK companies.

Whitbread, which owns the Premier Inn hotel chain, has just reported an 8% slump in profits for the last six months.

Like-for-like “accommodation” sales declined by 3.6%, which it blames on “continued weak regional market conditions”. In simple terms: people are booking fewer hotels rooms, which suggests they’re cutting back on holiday trips and business visits.

Whitbread says market conditions are challenging -- with business confidence remaining weak and leisure confidence in decline, in the face of “heightened political and economic uncertainty”. Brexit, in other words.

Some 80% of Premier Inns are located outside London. Alison Brittain, Whitbread CEO, says business beyond the capital is particularly challenging:

Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.

Brittain also warned shareholders that “the near-term market conditions in the UK remain uncertain”. No-one would argue about that, given the crucial votes taking place in parliament tonight.

Introduction: Pound back below $1.30 ahead of crunch Brexit votes

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s a crucial week for the future of the UK economy.

This evening, parliament will vote on whether they agree with the broad principle of Boris Johnson’s Brexit bill - as the government begins a wild dash to get the UK out of the EU by the end of the month.

MPs only saw the 110-page document last night (!) so it’s not clear how many will support it.

Even if the Second Reading is passed, the Commons could reject the whistle-stop programme to have the Brexit deal approved by Thursday night. That would derail Johnson’s plans, and make an extension beyond 31 October likely.

It’s also possible that Labour could amend the deal in the coming days, by attaching a commitment to a customs union. That could also scupper Johnson’s ambitions of leaving the EU in 9 days time.

The pound is holding up fairly well in the face of this uncertainty. It’s trading around $1.2970 this morning, having hit $1.30 for the first time since May on Monday. Sterling has rallied by over 5% in the last two weeks, hitting a series of five-month highs.

That’s because the City has come to the view that a disorderly Brexit is unlikely -- Johnson will probably get his deal through eventually, although a general election may be needed first.

Mark Haefele of UBS Global Wealth Management predicts the pound will remain jittery.

Short term focus will now be passing Johnson’s deal. On balance, we think that the legislation will not be passed in time for an end of October departure, forcing an extension. We expect the EU will accept this extension rather than face a no-deal, although their decision may not be immediate.

Following the large moves in sterling over the last two weeks, we will likely see further volatility in the days ahead as the next phase of Brexit unfolds.”

Also coming up today

The latest UK public finance figures are expected to show that Britain borrowed £9.7bn to balance the books in September, up from £6.4bn in August.

The CBI’s monthly survey of UK industry is likely to show that manufacturers are still anxious about economic conditions.

And MPs on the Business committee will take a break from Brexit to quiz Thomas Cook’s auditors about the financial problems that brought down the world’s oldest holiday company last month.

The agenda

  • 9.15am: BEIS committee inquiry into Thomas Cook collapse
  • 9.30am BST: UK public finances for September
  • 11am BST: CBI survey of UK industrial trends
  • 7pm BST: Vote on Second reading on the Withdrawal Agreement Bill
  • 7.15pm BST: Vote on Programme Motion for Withdrawal Agreement Bill

Updated

 

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