tv On the Move Bloomberg April 8, 2015 3:00am-4:01am EDT
i want to get straight to the morning brief. 47 billion pounds. the second-biggest energy producer boasting a market value twice the size. the cash runs dry in just 24 hours. the greek prime minister sits down with russian president vladimir putin. the bank of japan keeps policy unchanged. the shanghai composite doubles in 14 months. these are the things we will be watching. futures in london are higher. caroline: it's going to be all about the footstse. basically flat in germany.
there has been a bit of caution in the market. we are looking at what the federal reserve will publish. it is about how cautious they are looking in terms of increasing interest rates going forward, how far they are pushing that back. what janet yellen has to say. looking at the bank of japan, pretty much flat. we are looking at european stocks. let's have a check on oil. so many assets are looking cheaper given that we have seen oil prices in half. we are at $52 99. once again, issues about supply cuts coming in the united states. u.s. stockpiles are expected to have risen for a 13th week according to the energy agency. let's have a look at the impact between shell looking to buy bg group.
similar moves we are feeling with the pound euro as well. the euro lower against the pound. you will see the pound gaining strength against the euro as we see the move happening as the deal was announced at 7 a.m. also keeping a close eye on the yen after we saw the headline about the bank of japan. schroeder coming out and saying, i remain on target, but my influence is working. the stimulus is working. the 2% inflation target will be retained by 2015. most economies expected we will see more stimulus by october. the yen strengthening ever so slightly against the dollar. today is an m&a day. we have to wait for bg group.
this is a serious premium. 47 billion pounds is what shell is looking to spend on. it will be three pillars. this is about liquid natural gas. they want to move towards liquefied natural gas. they will have 95% of the combined entity. the chief executive has over it -- only been there for two months. he says, i will stay there when -- while the companies come together, and then i am off. this is a megadeal. will we see more consolidation in the oil industry now that we have oil prices so low?
this is as the french government say they will up their state. they are temporarily increasing their stake in reynold -- ren ault to help beat the extra voting rights. this is about him in a once again. this wave of potential rumors the fact we might see a french media company potentially getting into dailymotion. meanwhile sky is up 3%. the reports that the french media company is upping the tv capacity. united kingdom up 3%. they are currently saying that is not true.
>> they look to buy bg group. joining us for more i guess the question is what was the trigger for this deal. how big of a component is that going to be going forward? >> this is the first response we have seen during the slump. they are saying it may hold off. we may not see these kinds of deals later in the year. this is going to be a trigger for more dealmaking. this is probably what they wanted.
>> do you think this could set off more consolidation? i am seeing bp stocks move higher by 3%. what are your thoughts on that? >> absolutely. we are discussing it being made. this is something we are not aware of. it is maybe going to trigger some other companies in the sector. >> thank you for joining us. i want to get the take of this. we saw the collapse in oil. >> i think one thesis is the
cost problem. with -- with the weakness in assets they are coming up with problems. they will use this opportunity to lower the cost of it. i think it was extremely intense in the last few months. we reflect that to a huge extent. maybe the stabilization we are seeing seems to be coinciding with the oil price. from an m&a point of view it may
make better positions when you expect them not to move as much. >> looking at the stock up 42%. if i sit with you it is still a low price. if you look at the average premium it is at 40%. these companies are going to play -- to pay a solid premium to get these acquisitions group. is that something you still expect, even though we are in a rough environment? questec think the fact you are going to pay a premium is not a huge surprise. i think a question is what is the value of the assets. it looks like a lot.
it is not necessarily out of ordinary. >> we are going to keep an eye on it. at 8:30 we will bring you german construction bmi. we are watching retail sales. 50% premium. bg shell is one story. the greek prime minister in moscow to meet with russian president vladimir putin. you are looking at live pictures of moscow. it stands to be a key one. if there are deals to be made more on that.
what does it mean for consolidation? b.p. up by over 4%. outside of the corporate world we are focused on greece. tsipras meets putin. the greek prime minister is in russia. the economy remains stagnant. there is one lady in berlin that may not be so happy. let's get to our man in berlin. he is haunts nichols. let's start with you. tsipras, meeting putin. >> we have had two bits of
information. mr. tipper us not be asking for financial support -- mr. tsipras may not be asking for financial support. we have an idea of what would be tolerable. russia imposes counter sanctions. this mainly would have to do with fruits and vegetables. 40% of russian strawberries come from greece. what they want is a little bit of relief. they might want some details. there was a possible asset swap.
that wasn't on the table. they are open to this idea. we also have a softening of sanctions allowing greece to export some goods to russia. you cannot soften the sanctions. that is the line brussels and berlin wants to hold. jonathan: president putin. what does he hope to get out of this visit? >> the sanctions are about to be renewed.
greece is not the only country voicing concerns. two countries, russia and greece, we have a lot of historical ties. both countries will celebrate easter this weekend. they will get strong support from greece. >> the global head of equity strategy we talk about every single day. nothing changes. it is a big unknown. are we still concerned? >> difficult to describe. we knew the problem was going to
come back. we knew the challenges had to be supported. the rest of the market does not seem to care. investors are happy to wait. it is quite cheap. if you're worried about greece, you can do it at reasonable levels. what is happening in russia is there is an onslaught to the greek situation. there is a huge political argument.
versus the cost of fiscal transfers. jonathan: let's talk about markets. stunning rallies this year. what is the next leg of this rally if there is one? where does that take place? >> the next is to think of it as an expression. it is high-performance of dax and german autos. i think stabilizing between 108 and 110 give or take, it is what about if the economic recovery does come. the value in europe, seeing some
recent performance with banks is logical. we are calling for more preferments with banks. jonathan: you and i are going to get further into banks in a moment. joining us down the line. good to have you with us. >> great to be on the program. i think we have been looking at it for a long time. it really worked well in our minds. two companies coming together. if you look at what deepwater could be this was always going
to be a fantastic combination. not only was it a great logic, but it became a compelling value. together with the value we see, this became something that looked too good to pass up. that is why we move as we did in this area. jonathan: say the macro environment helped the valuation. is that an expensive way of saying the collapse of the oil price helped drive this deal? like the collapse of the oil price has been quite a bit for the sector. it always seems to happen when the oil price comes down and there is a different valuation. the way we would look at it is
if you look at the combination of the company's, what we could do with the asset bg has with our capabilities applied to them. we saw a lot more value than the marketplace. >> it looks like this is a big bet in gas. >> a very good question. it is a bet on gas. it is a 50-50 company. combining it will not change it fundamentally. we see gas is an important fuel
for the future. bear in mind this is a field that has 50% less carbon dioxide emissions. we see gas to be very important. we think of that on gas is a good thing. jonathan: is this signed sealed, and delivered? do you see any big hurdles going forward? >> as with any bill of this magnitude, there will be a hurdle. we will have to go to brussels as well. brussels is the least complex one. it will take time.
otherwise, we would not have embarked on it. jonathan: i just want to talk about the price paid as well. do i look at that or the premium? by look at the premium it looks a little expensive. typically this carries a 40% premium. what was the thinking of the price paid? >> you have to look at it as a net asset. you have to look at how it is valued. what the assets would be worth if they were combined with ours. that is the way you typically do it on large deals. if you look at it that way you look at what it is worth for the combined company. there is a huge gap in
valuation. if you look into sectors, a premium of 50% is middle of the road. if you look at what it does for the key metrics of the company, earnings-per-share is going to be on words. free cash flow is going to be very serious almost immediately as well. together we will use it as a springboard to the best. >> you talk about earnings per share. that might be flattered by the buyback.
what is the thinking behind the buyback? we really work the value out of it by the capability of shell. making the company much more straightforward. there are three core pillars. a very strong business and some very strong cash engines as well. it's being able to do 20 billion by the end of the decade. what we are going to do is significantly streamline for the existing portfolio. we see about $30 billion of assets will be sold.
that is together with the increased operating cash together with a disciplined approach will basically make a lot of free cash flow available. first of all you know our dividend policy, but on top of it a significant buyback, $25 billion which will stop paying back the equity issue we will have to do to complete this deal. jonathan: i'm very sorry. we have 30 seconds left. you are buying bg. were you listening to anyone else? ben: we have been looking at a range of companies, but this is a far the most compelling deal not just for us but for the industry. jonathan: great to have you with us. the global head of equity
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jonathan: welcome back. here's a picture of markets across europe. the dax off by about 0.3%. the ftse 100 outperforming. the ftse 100 up about 34 points. i'm sure caroline hyde will be looking at those energy stocks. let's go across to her. caroline: all three stocks i'm completely focusing in on this industry group. oil and gas is the best-performing industry group today. the sector is rising the most
since march 2009. the energy stocks in the stoxx 600 currently trading up 5.4%. this stock leads the charge 37.5%. the reason is, shell are looking to buy bg group for a cool 47 billion pounds. this is a record move for bg group in its history, but if you look at where we last hit this sort of number, the last time that we saw these share prices at this level, only july 2014. six months ago. it takes a 40% surge to get back to the levels we saw before the oil price started to sink. in 2014, we saw the sudden capitulation in the oil price, the downward trend in wti crude and brent crude prices. this is why these assets are so rich for the picking. this is why tulloqw is being driven up almost 12% this
morning. this one is particularly focused in africa. maybe its assets look appetizing to the likes of the oil majors out there. bg group and shell together would make the second-biggest energy company in the world. tullow oil could be right for the picking. and bp. ever since that terrible tragedy in the gulf of mexico this share price has been down. could this be bought by exxon mobil, the biggest energy company in the world? share price up 4%, one of the biggest gainers today. back to you, jon. jonathan: thank you very much. you are spending time putting your portfolio together. rip up the script. take a breather until october. that is the prescription from
our next guest. he says investors should hold proceeds as cash and take a long vacation. he is the chief economist at saks a bank. he joins us now from copenhagen. we are also joined by the global head of equity strategy at citigroup. great to have you with us this morning. sell everything, take six months off, tell me why. >> we work too much in the financial sector so i think it is time to take some time off. on a serious note, what concerns me is that the valuation of the market stocks are cheap right now. i think there is a rate cycle where the european qe is not as effective as the u.s. one because the u.s. is going to do a margin call on assets. finally, i think economic growth
will impair the top line together with dollar strengthening due to the basis swaps reacting aggressively over the last couple days indicating that we are short of dollar funding, creating another downside. all in all, i think preservation of capital is the recipe to follow. jonathan: it has been a buy everything story. bond yields record lows. is this a stocks story for you, or a sell everything story? steen: it is a sell everything story. i just came home from asia australia, the middle east. dubai is exactly where it was in 2008. there's more than 70 cranes working in the center, all of it nonproductive gains. london is basically banks and real estate. having said that, i have no real
call to predict the markets. i'm just saying, be safe. you are entering into the seasonal part of the year where it is getting very dangerous and i'm not even mentioning the geopolitical risks. jonathan: stay with us. i want to bring in another person. i guess neither you or i need much persuasion to take six months off, but do you agree with the things he is saying? >> i'm going to struggle to agree. from a retail point of view maybe you could take a bit of time off. from an institutional point of view, it is not an option. the liquidity is not there. shifting assets takes time. i'm not sure i'm bearish on the market either. if you end up selling everything
and you end up with negative rates as you do in many countries, i'm not sure how that helps your investment process. jonathan: let's talk about liquidity. it has been a worry for a lot of people. is this just the recommendation for the retail players sitting on a small portfolio or for the institutional guys as well? steen: the piece came out of an interview i did with bloomberg in dubai. what i said is that people need to take some of the cream off the top of the coffee here. there's been too much movement in too short a space of time. the valuation is extremely high. the expected return in 3, 5, 7 years is exactly zero. i don't know what you want to do with zero. by the way, negative inflation rate really means that being in cash is good relative that you
have a 10% in the equity market and a 30% downside. jonathan: that is a strong argument. mohamed el-erian, his personal cache talking about holding some of that wealth in cash. with negative inflation, is cash such a bad thing to be sitting on? antonin: first of all, i think the central banks are trying to address negative inflation and we are seeing liquidity pumped into europe in particular. equities are not as cheap as they used to be, but they are not expensive either. we are still a pretty cheap asset class. beyond that, you've got more liquidity coming. you letter earnings growth. you've also got low earning expectations. the year on year quarter growth
is priced at -5%, which is unheard of in the u.s.. all of that does give us something in the market. cash levels are on the high side. as you saw, there is more m&a, more dividends, and all of that makes a pretty good equities story. jonathan: steen, it would be unfair to characterize you as an uber bearish economist, because that is not true. i know you look at the energy sector. is that something you could get bullish about? steen: going back to the advisory work in london, out of the 23 stocks, i think 15 is in the energy sector. my standard is really just to enable myself to go into the american market which i think
is getting extremely cheap. china is really ramping up its demand. it is being supported by the u.k., most of europe as well. i think there is a boost coming to the commodity and energy sector. it makes perfect sense that we see the oil sector this morning doing well. the 25% i do have in stocks is going to those places. later in the year, into emerging markets. jonathan: steen jakobsen, great to have you on the show this morning. time to take some cash off the table. antonin jullier still with us. talk about the energy companies. i want to talk about the banks with you in europe, and the next leg of the rally in the eurozone. bond issuers in europe, record months in march.
how supportive is that going to be of the bottom line? antonin: a lot. from the bank's point of view whether growth is on the increase, there should be -- in the u.s. as well, which would help european banks. more importantly, we are seeing signs of cutie starting to have an impact. -- of qe starting to have an impact. all of that bodes well for banks. the bigger question, we alluded to it earlier, was if you think that qe was priced in, the question is, where am i getting the biggest bang for my buck? the bank seems to have underpriced the positives. that would explain why some of that has been held back. assuming we get something which is not a horrible surprise, it
should be a nice catalyst /earnings story for the banks. jonathan: we talk about eurozone banks, a very broad sector. we are not talking about spain. we are talking about france. which ones? antonin: whether it is -- the bnp and the socgen's of this world seem to be offering a sweet spot between not being too free and not to cold either. [indiscernible] without going into too many single stock details, you can find the banks in france and spice it up with a few german and italian ones as well. jonathan: bullish but more selective. thank you very much for joining us this morning. let's check in on shares of bgn shell.
jonathan: good morning and welcome back. this is "on the move." let's bring you up to speed on some top stories. as many as 40% of flights in and out of paris airports could be affected by a planned air-traffic controllers strike. french airspace is the busiest in europe and the strike will affect airlines using the country's airspace as well as those flying through french airports. bank of japan kept its policy unchanged, preserving the record stimulus. governor kuroda says stimulus is having the desired effect and cpi will likely reach 2% around the end of the year. the nikkei closed up 0.75%. stocks soaring in hong kong today after trading has been closed since thursday.
shares are up more than 3%. the shanghai composite closed up almost a percent. that equity market, doubling. our top story today, shell has agreed to buy bg group. the acquisition would make a monster energy company, the second biggest in the world, more than twice the size of bp. i spoke with shells ceo this morning. he told me the deal was always a matchin shell''s mind. >> we have been looking at bg for a long time. it was always a match that worked well in our minds. if you look at what integrated gas, energy could be, add to that the capabilities we have as a leader, this was always going to be a fantastic, nation.
over the last month, the macro environment evolved to a point that not only was it a great logic but it also became a compelling value. together with the value that we see in combining the value that we see in the synergies, this became something that looked too good to pass up on. that is why we move as we did. jonathan: you say the macro environment helps the valuation of this deal. is that an expensive way of saying the collapse of oil prices helped drive this deal? >> the collapse in the oil price has done quite a bit for the sector. fluctuations always happen when the oil price comes down and there is a different valuation. the way we look at it is, if you look at the combination of the companies what we could do with the fantastic assets that bg has with our capabilities, we simply
saw a whole lot more value in that combination than the markets. therefore, that value drove the logic of the deal. jonathan: the energy sector very much in the headlines this morning, not just because of m&a , but because of the commodities themselves. if iran nuclear talks go well crude could fall by another $15 a barrel. energy administration says iran has 30 million barrels of crude ready to go. let's get some insight on that figure. we are joined by philip craddock of bloomberg intelligence. a $15 premium? really? >> iran hasn't been able to export as much oil as it wanted to. jonathan: when you look at refiners in europe, more good news for them? >> for them, it is good news.
iran has been a supplier of crude oil for the military and the region. southern europe especially, but also other regions in europe. they have difficulty sourcing i -- uranium during sanctions. jonathan: let's forget iran for a moment and talk the u.s. we talked about the u.s. and speculated that they may allow full export of oil. that would be terrific news for european refiners. is it likely? philipp: for the u.s., i think exports will serve as a safety valve. right now, a lot of refiners in the u.s. are in maintenance. they are shut down. this is a seasonal thing. the crude oil they are producing has no place to go. the stocks are very high. they are almost at the limit.
exports would be a good option to get this oil out of the market and reduce the downward pressure on wti. jonathan: the regulations are a long-term play. you don't just bring them in and out from year to year. the story you are talking about is that a temporary phenomenon or something that will last? philipp: the $50 slump is very temporary. if they change that now, it is unlikely that they will change back again anytime soon. jonathan: for that reason, will they do it? stock prices in the u.s. are very high. is that a temporary phenomenon? philipp: no, that will come regularly. refineries will have to shut down every year for a couple of weeks. shale oil production is growing strongly. this could be a long-term problem. jonathan: philipp chladek thank
you for joining us this morning. here is a picture of the markets. the ftse 100 is pushing higher. we are up by 0.4%, driven by bg, climbing just a bit higher. shell down by 2.7%. 47 billion pounds paid by shell for bg, creating the second-biggest energy producer in the world. some phenomenal numbers here. we will talk about the markets and that deal after the break. ♪
jonathan: welcome back to "on the move." "the pulse" is coming up. we are joined now by guy johnson. guy: the analyst call is taking place. we will be talking a little bit later on. we will get his take on what is going on this morning. i think the kind of, the deal is interesting. what it does for the sector is fascinating. if you were pulling the trigger on a deal do you think other people are going to take a look? it has taken not that long since the oil price and gas price started to come down. i think that will be a surprise to people. jonathan: i want to talk about
the companies. what a job. i would quite like that job. what would you make of that? guy: he has won the lottery. he was in a fantastic win-win position. the share price came back up and he was able to achieve that. he got a very nice package. clearly, the oil and gas price makes the option of doing m&a deals easier in some respects. what a fantastic win-win. i know the guys at bloomberg news will be running the calculations. jonathan: phenomenal numbers. outside of this deal, it would normally be the headline, mr. tsipras heading to russia days before they have to pay the imf. still some concern they are running out of money. guy: you think the russians have got any money? jonathan: probably not. guy: the russians have got their
own problems right now. lending money to greece would come at a very high price tag. i think this is a message-sending exercise rather than a money-raising exercise. jonathan: are they taking notice? guy: i don't think they are. they are talking about reparations from germany. this isn't turning the conversation down to a level that will get deals done. we will also talk about the u.k. politics story. labour is looking to outlaw the non-dom status. we will talk about that as well and see how the tories respond. jonathan: looking forward to that. of very busy morning for mr. guy johnson. there is only one story to talk about. the ftse 100 is pushing higher. two companies stand out. 's shell's deal for bg. this company, the second-biggest
guy: going for gas. shell snaps up bg, making the biggest deal in the industry for at least a decade. for been in fruit. tsipras will meet with putin in moscow. the greek government says it doesn't want support from russia , at least on the financial front. and, closing a loophole. ed miliband pledges to end the non-domicile rule that allows some people in the u.k. to avoid paying their income tax.