Investors turn optimistic in (another) crunch day for eurozone crisisHopes of a deal to solve Greece’s financial crisis and a spate of takeover talk have between them helped lift markets from their recent doldrums.The FTSE 100 is currently up 80.46 points at 6790.9, although off its best levels on talk that Greece had last night submitted the wrong document to its eurozone partners. The original document had apparently gone some way to breaking the deadlock between Greece and its creditors, so a hitch of this nature has revived the doubts about whether a deal will actually be done.(1) Both [bidders] seem credible...although there are limited synergies trans-borders for pay-tv (Vivendi has Canal+, the main French pay-tv operator) and it makes more strategic sense for Vodafone to own Virgin Media as it gives its own broadband infrastructure.(2) the fact that the talks reportedly broke down over price rather than the principle of selling the stake suggests the Murdochs are open to a deal.Reports in the Telegraph over the weekend state that the Murdoch family/Fox could be considering a new bid to take 100% control of Sky after rebuffing two recent approaches for their 39% stake in the company. We think the Telegraph report highlights the potential strategic value of Sky to a number of different parties and this is not reflected in the current share price. We remain fundamentally positive on Sky and believe investors have underestimated the upside to growth from new initiatives and the benefits of scale from the Sky Europe deal.The Sunday Times reported... that Borealis Infrastructure was once again considering the potential takeover of Severn Trent. Borealis was a key member of the LongRiver consortium that almost launched a takeover bid for Severn Trent two years ago, and it was said to have had “early stage” discussions with Severn. We believe that such a deal remains feasible, with numerous similar transactions having occurred over the past few years, whereby cash rich entities such as sovereign wealth funds or Canadian pension funds have acquired UK price regulated infrastructure assets, seeking safe, steady returns over many years. The previous highest LongRiver potential offer was at 2200p cum the then final dividend of around 45p.As Severn has just gone ex of its final dividend, the like-for-like value of the previous potential bid would be 2155p. We estimate that this equates to a 25% premium to regulatory capital value (RCV) premium.We expect the shares to react positively today and believe this could be the first step towards complete takeover at some point in the future. In the meantime, Spire is likely to benefit from Mediclinic’s international expertise with potential for supply chain benefits. We reiterate our hold recommendation with a 375p target price. Continue reading...
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