The Irish Independent reports that Dutch insurance group Eureko is understood to have built up a small stake in insurer FBD Holdings prior to making a preliminary €1.2bn approach to buy the Dublin-listed company.
It is believed to be mulling over the idea of tabling a joint offer for FBD with the Farmer Business Development, which owns over 25.7pc of the Irish insurance company, and the FBD Trust, which holds a further 8.7pc. However, there are no indications that it has contacted either of these about any such plan.
The Zeist, a Netherlands-based group, has retained Davy to advise on a potential deal, sources said. Goodbody Corporate Finance and Goldman Sachs are guiding FBD.
Shares in FBD, where Philip Fitzsimons is chief executive, rocketed as much as 20pc higher to €35 yesterday -- to within a whisker of the indicative €36-a-share approach -- on confirmation that Eureko had made an overture to the group. They closed up 16pc at €34.
Well-placed sources said that Euroko is known to have been buying shares in FBD in recent months. It is believed that the position is held in the form of contracts for difference (CFD), a leveraged financial derivative.
These are most likely to be represented -- either partially or wholly -- in a 8pc stake declared by German insurer Allianz, whose Dresdner Kleinwort investment banking subsidiary deals in high-stakes CFD business in its prime brokerage division.
Secret
Mr Fitzsimons was quite vocal about the need for greater disclosure on secret stake-building through CFDs at the time of FBD's full-year results last month.
FBD said late Sunday that the preliminary approach for the group is unclear and "appears to differentiate among shareholders and is highly conditional".
By joining forces with the farmers' investment vehicles, it would be able to circumnavigate Irish takeover law, which bans a bidder from making different offers to different sets of shareholders.
NCB Stockbrokers said that FBD would fit neatly with Eureko's existing Irish business, Friends First. "Friends First had €246m of non-life gross written premiums in 2006, which compares to FBD with gross written premiums of €407.3m in that year," NCB said.
"Eureko has highlighted it is intent on building an integrated, pan-European group consisting of market leaders in the territories in which it operates. An acquisition of FBD would put it in a position to in Ireland," it added.
The Irish Independent also reports that FreshXpress, the discount supermarket chain born out of the Brendan Murtagh-backed purchase of troubled discount Kwik Save last summer, has gone into administration.
The Kingspan co-founder is understood to be behind a subsequent deal to purchase the nine operating stores remaining from what was once a 350-strong network.
Mr Murtagh, younger brother of Kingspan's chairman, Eugene, was the key figure behind a deal last July to rescue 56 Kwik Save stores as the remaining 90 outlets went into liquidation, at the expense of 1,100 jobs.
The supermarket group's woes have been brought about by the aggressive expansion of hard discounters, such as Denmark's Netto and Lidl and Aldi of Germany, in the UK over the past decade. This has led to a collapse in its sales in recent years.
The Cavanman, who had been involved in the business since he backed a £50m rescue plan in February 2007, reportedly took a 70pc holding FreskXpress and kept the Kwik Save managing director Paul Niklas on board, who received a 30pc stake.
Alan Murtagh, a son of the Irish businessman, was a director of the business even before his father bought it out of administration.
FreshXpress was initially expected to re-open all the stores under its name, saving 600 jobs, but decided to only rebrand 24 stores situated in the best locations.
It sold the rest of the chains in chunks to Tesco, Sainsburys, and The Co-op.
Recent months have seen a raft of underperforming FreshXpress stores being closed down and Mr Niklas cutting his ties with the company. He is understood to have sold his stake holding.
Menzies Corporate Restructuring was appointed as administrator of the company within the past few weeks.
At a hearing before the Manchester Crown Court, another special vehicle called FX Holdings -- also understood to be backed by Mr Murtagh -- was given the go-ahead to acquire the remaining operating outlets.
FX Holdings has brought in Andrew King, a former executive at the company's main supplier, Costcutter, in to head up the significantly slimmed-down business.
Joanne McGuinness, national officer with the Union of Shop, Distributive and Allied Workers (Usdaw) in Britain, said: "For the sake of our membership, we have to hope that the company (FX Holdings) will turn the remaining business around. We also hope that we might have more advanced notice if things start to deteriorate again."
There are some 130 people employed in the nine stores, Ms McGuinness said.
The Irish Times reports that shares in insurance company FBD gained almost 16.5 per cent to close at €34 last night on news of a preliminary approach from Dutch financial giant Eureko at about €36 per share.
Crucial to the prospects of any bid from that quarter will be the views of some 4,500 shareholders in Farmer Business Development, a plc which holds 25.68 per cent of the company.
Eureko's proposal is believed to include a form of partnership with Farmer Business Developments and FBD Trust Co, a separately managed charity which holds 8.98 per cent of the insurer. Such a strategy is implied in a stock market notification from FBD which said the approach "appears to differentiate among shareholders and is highly conditional".
There was no comment from FBD itself beyond the statement noting the approach, which said there could be no certainty of a formal offer or any transaction.
Neither was there any comment from Eureko, which owns Friends First in the Republic. As a general rule, said a spokeswoman, Eureko typically examines transactions that would be earnings enhancing and would be in line with overall strategy.
The combined interest of Farmer Business Developments and FBD Trust would be strong enough to block any bid, but their views are not known at this time.
NCB analysts John Cantwell and David Odlum said in a note that any takeover is likely to be at a significant premium to FBD closing share price on Friday - €29.20 - given the scale of the stakes held by these two groups.
They said the Friends First business would complement FBD's operation. "Friends First has offices in Dublin, Cork and Galway and operates life and pensions, asset finance and loans businesses. Its life and pensions business is sourced through independent brokers and relationships with financial institutions.
"Friends First had €246 million in non-life gross written premiums in 2006 which compares to FBD with gross written premiums of €407.3 million in that year. Eureko has highlighted it is intent on building an integrated, pan-European group consisting of market leaders in the territories in which it operates. An acquisition of FBD would put it in a position to significantly increase its position in Ireland."
Prior to news of the Eureko approach at the weekend, FBD shares had already risen by 14.5 per cent since the start of the year in a market in which financial stocks at large declined 10 per cent in the same period.
A spokeswoman said last night that Farmer Business Development had no comment to make on the preliminary approach from Eureko. She was unable to say whether the support of a simple majority of its equity-holders or a higher majority would be required for the organisation to engage in any transaction with Eureko.
Reports that a firm separate from Eureko was building a stake in FBD via contracts for difference with London investment bank Kleinwort Benson could not be confirmed last night. Kleinwort Benson is controlled by Dresdner Bank and Allianz, which owns some 5.5 per cent of FBD.
The Irish Times also reports that the Takeover Panel is believed to have asked businessman Denis O'Brien to clarify whether he intends mounting a bid for Independent News & Media (INM) after the London Observer quoted "sources" close to him indicating that was his ultimate intention.
There was no comment from Mr O'Brien's spokesman on any aspect of his engagement with the panel.
The panel, which also declined to comment, has not issued any statement on its examination of the case.
Mr O'Brien, who has never publicly said what his ultimate intentions are for his investment in INM, now owns more than 21 per cent of the group. Having criticised the INM board, its management and their strategy, he is widely presumed to be planning a bid at some point in the future.
INM has rejected each of Mr O'Brien's attacks and last month branded him a "dissident" investor, accusing him of trying to destabilise the business as he builds his stake.
The company's chief executive and 27.1 per cent shareholder, Sir Anthony O'Reilly, has consolidated his position in recent days by buying up shares to offset the impact of the dilution of all shareholdings that followed an all-share deal with US group Clear Channel Communications.
On March 30th the Observer quoted sources close to Mr O'Brien saying "he isn't intending to sit on the sidelines with his tanks on their lawn for ever and a day".
An unnamed confidant was also quoted in the same article saying "money won't be a problem" in the event of a full bid. That person added that "the company won't be in the same hands further down the line".
The Observer journalist who wrote the story, James Robinson, reported two days ago that the panel's director general, Miceal Ryan, asked the paper last Wednesday to authenticate the quotes in question.
Goodbody Stockbrokers said in a note that potential implications for Mr O'Brien "in the event of indiscretion, and options at the disposal of the Takeover Panel" would appear to include a move to censure him or, if no offer is imminent, a move to prevent him bidding for the group for 12 months.
Analyst Gerry Hennigan said recent stake-building both by Mr O'Brien and Sir Anthony suggests that events are likely to come to a head sooner rather than later.
INM shares closed down 0.37 per cent last night at €2.134.
Many market participants believe such price levels imply the market believes a bid is not imminent.
The Irish Examiner reports that Ryanair chief executive Michael O’Leary (pictured) says a pay freeze for senior managers has been extended to more staff.
The carrier, which last month froze the pay for about 30 senior executives this year, said the salaries of its staff not on multi-year pay agreements have been frozen.
Those affected by the freeze include pilots and cabin crew. The airline did not say what percentage of its more than 3,000 staff are affected.
Ryanair has warned that profits in the current financial year, which runs from April to March 2009, could sink by 50% if oil prices remain above $85 a barrel and average fares fall by 5%.
The worsening outlook for the aviation industry has prompted Ryanair to seek further cost reductions, including a plan to shut a call centre in Dublin, with the loss of up to 40 jobs.
The airline has sought cuts in airport charges and baggage handling at airports across Europe.
Mr O’Leary said it was also likely that Ryanair will remove some of its planes from Dublin Airport this winter to cut back on its flight schedule and reduce costs.
Mr O’Leary was speaking in Dublin yesterday as the airline announced it planned to seek a judicial review of the decision by the Commission for Aviation Regulation (CAR) to raise the cost of renting check-in desks and self-service check-in kiosks at Dublin Airport.
Mr O’Leary said the review was being sought as the regulator had not consulted with airlines.
He claimed there was no justification for the rise and again called for the dismissal of the regulator, Cathal Guiomard.
Mr O’Leary would not comment on how Ryanair would cast its vote at Thursday’s extraordinary general meeting of Aer Lingus shareholders to approve the purchase of new aircraft.
Ryanair, which owns 29% of Aer Lingus, would not be able to block the motion on its own. Aer Lingus requires only a simple majority of shareholders to approve the purchase of 12 Airbus planes.
Separately, Aer Lingus said yesterday it carried 898,000 passengers in March, an increase of 15.4% on March last year.
The number of travellers on short-haul routes rose 15.7% and traffic on its transatlantic destinations was up 13.4%.
The load factor — the amount of seats per flight it fills — fell 2.8% to 75.3%. The fall was due to a lower load factor on its US routes as more aircraft were added for the transatlantic fleet, leaving Aer Lingus with more seats to fill.
The Financial Times reports that Europe’s 30 most important transport projects will cost far more than first thought, making it uncertain how some financially strapped governments will find the necessary funds, according to an independent study.
The report, prepared by PwC, the professional services firm, for the European parliament, blames the €40bn ($63bn, £32bn) cost overrun on poor project management, planning difficulties, changes in project specifications, lawsuits and lack of funding.
In 2004, the European Union identified 30 road, rail and sea transport schemes as priority projects for the purpose of integrating the economies of the bloc’s 27 member states, promoting their competitiveness and strengthening sustainable economic development.
The projects include a rail link from the French city of Lyon to the EU’s eastern border with Ukraine, another rail connection from Berlin to Palermo in Sicily, and a motorway from the Polish port of Gdansk to Vienna and Bratislava, Slovakia’s capital.
The cost of the 30 projects is likely to be about €379bn, 11.6 per cent more than the original estimate in 2004 of about €340bn, according to PwC.
More than half the bill is expected to fall on four countries – €62.7bn for Italy, €62bn for Spain, €41.4bn for France and €31.8bn for Germany. The UK’s costs are forecast to be €26.7bn.
Paolo Costa, an Italian liberal who chairs the European parliament’s transport committee, said individual countries were at present expected to bear 80 per cent to 90 per cent of the cost of the projects, with EU funds accounting for the rest.
But he noted that a country such as Italy, whose public debt is more than 100 per cent of gross domestic product and whose economic growth rate has been one of the EU’s lowest for 15 years, would not find it easy to come up with the vast sums required.
“It’s high time for EU member states to tell us how they intend to deal with these projects,” Mr Costa said. “I don’t think the EU can just sit and wait for things to sort themselves out.” He recommended that EU governments make a bigger effort to obtain private sector support to co-fund the projects.
The biggest cost overrun affects the rail link from France to Ukraine, which according to the report will cost €52.7bn rather than €38.1bn as predicted in 2004.
Another rail project soaring in cost is a high-speed axis connecting Paris and Lyon with Bilbao, Barcelona, Madrid and Lisbon. This is put at €45.2bn, up from €39.7bn in 2004. The Berlin-Palermo rail link will cost €51bn rather than €46.2bn as first thought, according to the report.
The study also names several projects that are falling years behind schedule. The worst offenders are a freight railway line from Sines in Portugal to Madrid and Paris, and a high-speed, interoperable rail network designed to integrate Spain and Portugal. Both are 10 years behind schedule.
The European Commission regards the 30 projects as important because they will reduce road congestion, help deal with a big increase in freight traffic and slow down an anticipated rise in carbon dioxide emissions from transport.
The FT also reports that a rash of gloomy data over the past week has shortened the odds of a rate cut by the Bank of England’s monetary policy committee on Thursday, economists say.
Of 63 economists polled by Reuters last week, 48 said they expected the MPC, headed by Mervyn King, to cut rates by a quarter of a percentage point to 5 per cent. That view was echoed in money markets where overnight sterling interest rates suggested an 80 per cent chance of a rate cut by Thursday night.
Economists cite data showing that the key Purchasing Managers Index of services purchases – the single greatest component of business demand – slowed significantly in February to a four-month low of 52.1.
Even more critically, they point to data that suggest the restricted access to credit is starting to bite and is likely to get a good deal worse in months to come.
However, the most alarming recent data are not hard economic statistics but surveys of sentiment that foretell future behaviour.
Whether these surveys of intentions are sufficient to persuade the MPC to cast aside its concerns about rising inflation is a subject of debate. Part of the dilemma is that backward-looking hard data show a weaker economy, but hardly a collapsing one.
“I think the Bank is very divided about what to do,”said George Buckley, UK economist at Deutsche Bank. “The question is how confident are you that the economy is weak enough to pull down inflation.”
Indeed, in a speech last week, Paul Tucker, an executive director at the Bank and an MPC member said: “In the near term, CPI inflation is very likely to rise to materially above our 2 per cent target. The question is whether that unavoidable temporary rise will remain just that, temporary; or whether it will feed into domestically-generated inflation.”
But for all the uncertainty about, Mr Buckley noted that the one thing on which there is agreement is that by year end, the economy will be weaker.
That expectation was underpinned by the latest mortgage lending data for February, which showed 73,000 new loans approved, roughly the level of the previous two months but a near 40 per cent drop year-on-year and a sign that housing demand is weak.
Moreover, the lending data showed that unsecured consumer credit – overdrafts and bank loans – more than doubled in February to £2.5bn, the largest such rise in more than five years.
To some economists, it suggested there is truth in anecdotal evidence of hard-pressed consumers who can no longer borrow against their homes turning to more expensive bank debt to cover their bills.
That view – and the expectation that much more is to come – was reinforced by the Bank’s credit conditions survey, which showed that the nation’s lenders intend to sharply reduce secured lending – mostly mortgages – sharply in the next few months. Far more banks will avoid making loans to those with weak credit history and more will demand much bigger deposits up front.
This survey of intentions came as lenders reported a surge in demand for re-mortgaging over the past three months.
“If the credit conditions survey is an accurate gauge of banks’ intentions, getting a mortgage will be more expensive and more difficult,”said Philip Shaw, economist at Investec.
The worry has been that hard-pressed homeowners whose fixed-rate mortgage has expired and who cannot refinance will have to pay standard variable rates, which can be much higher than their current rates.
If that leads to a drop in house prices and a rise in foreclosures, woes of weaker borrowers could spread more widely and eventually reach the creditworthy, Mr Shaw said.
The New York Times in a report from Bat Trang, Vietnam, says that the free ride for American consumers is ending. For two generations, Americans have imported goods produced ever more cheaply from a succession of low-wage countries — first Japan and Korea, then China, and now increasingly places like Vietnam and India.
But mounting inflation in the developing world, especially Asia, is threatening that arrangement, and not just in China, where rising energy and labor costs have already made exports to the United States more expensive, but in the lower-cost alternatives to China, too.
“Inflation is the major threat to Asian countries,”said Jong-Wha Lee, the head of the Asian Development Bank’s office of regional economic integration.
It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to customers.
Developing countries have had bouts of inflation before. Indeed, some are famous for them, like Brazil, which experienced triple-digit inflation in the late 1980s and early 1990s. But two things make this time different, and together promise to send prices higher at Wal-Mart and supermarkets alike in the United States, just as the possibility of recession looms.
First, developing countries now produce nearly half of all American imports. Second, inflation in these countries is coming at the same time that many of their currencies are rising against the dollar.
That puts American consumers in a double bind, paying at least some of producers’ higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries.
Asian businessmen say they do not have a choice about charging more. “This is a tough time to do business,” said Le Hoai Vu, the sales manager for the Quang Vinh Ceramic Company here in northern Vietnam.
The company just increased by up to 10 percent the prices it charges Pier 1 Imports in the United States for hand-painted vases because labor costs are rising 30 percent a year.
Over all, in Vietnam, one of the fastest-growing destinations for manufacturing investments and one of the fastest-growing sources of American imports, prices rose 19.4 percent from March 2007 to March 2008.
In China, Foshan Shunde Augustus Bathroom Equipment Ltd. in Foshan City is about to raise prices by 10 percent for a range of bathroom fixtures exported to North America.
“Rising inflation is a way of life in China these days, you see it everywhere,”said Faye Kong, the company’s international business supervisor.
The cost of American imports from less industrialized countries as a group is rising. A Bureau of Labor Statistics index of average prices for imports of manufactured goods from such countries fell gradually through early 2004, but is now rising briskly and was up 5.6 percent in February from the same month last year.
That contributes to rising inflation in the United States; in the 12 months through February 2008, the prices of goods for sale in the United States increased by 4 percent, according to the government’s Consumer Price Index.
But so far, Asian exporters have passed along only a portion of their costs. In China, for instance, prices are now rising almost 9 percent a year, triple the pace of a year ago.
Workers in the developing world facing higher prices have been increasingly vocal in demanding higher wages, with protests erupting in recent days in Vietnam, Cambodia and Egypt.
At the same time, inflation keeps rising: the Philippines announced that its inflation at the consumer level had doubled in the last five months, showing a 6.4 percent increase in March over the same month a year ago. And weekly inflation at the wholesale level has accelerated in India, reaching an annual rate of 7 percent in the week ended March 22, up from 3.1 percent as recently as last October.
Not long ago, it would have been unlikely for a poor country with high inflation to see its money strengthen in value against the mighty dollar. But the dollar is not quite as mighty as it once was. Large American trade deficits and other problems have weakened its appeal.
And there are signs that the dollar could fall further if developing countries’ central banks stopped supporting it, particularly in Asia.
Vietnam’s central bank even had to order the country’s commercial banks late last month to resume buying dollars within the tight range of exchange rates set by the government. Many banks had started betting on dollar depreciation and refusing to accept large sums in dollars, to the point that multinationals and exporters had trouble wiring money into the country to pay their employees’ salaries.
Additionally, the dollar’s weakness is itself a cause of inflation in developing countries, particularly those that have barely let their currencies rise against the dollar in an effort to hold on to export markets.
In a street market around the corner from the 270-year-old Lungshan Temple in Taipei, Taiwan, Teresa Gau, a fishmonger, is charging up to a third more for fish and crabs than she did a year ago. That is because fishing boat owners are charging her more as they struggle to cover higher costs for diesel fuel, which is priced in dollars.
“They have to raise the price to compensate,”Ms. Gau said.
Inflation in Taiwan has started to creep up partly because the government waited until this year to allow the currency, the New Taiwan dollar, to appreciate. Taiwan imports all its oil, and only now is the slightly strengthening New Taiwan dollar starting to hold down the cost for consumers in filling up their gas tanks.
Here in Bat Trang, an ancient ceramics center near Hanoi, Quang Vinh Ceramic’s fastest-rising expense is for vivid blue ink for painting vases and other pottery. Imported from Belgium, the ink is priced in euros and has soared 80 percent over the last year in Vietnamese dong.
Keeping the dong inexpensive in dollar terms helped Vietnam increase its exports by 24.1 percent last year, but also lured a flood of investment. Bank loans rose more than 50 percent last year, feeding a real estate frenzy that has not yet abated.
Brick kiln owners like Le Thi Hop here in Bat Trang have responded by tripling prices in the last year.
“Most of the people who buy my bricks say the price is crazy, but I say, ‘This is the market,’ ” Ms. Hop said cheerily.
High costs for construction materials are making it more expensive for the many multinationals like Samsung of South Korea and Hanes and Emerson Electric of the United States that are now building factories in Vietnam, partly in response to rising costs in China.
In addition to the weak dollar, economists say that countries like Vietnam, Egypt, China and Brazil are inherently more vulnerable to inflation when, as now, rising prices are led by increasingly expensive commodities.
Soaring food and energy costs have a far greater effect on developing countries like Vietnam, because of their large agricultural and energy-hungry manufacturing sectors, than on industrialized countries, which tend to have larger service sectors than manufacturing sectors.
Quang Vinh, which was founded by a 15th-generation pottery maker, has raised wages by 30 percent over the past year to keep up with food prices, which have also risen. Food is the biggest expense for the company’s workers, who earn $75 a month working eight hours a day, six days a week.
“Before, I used to go out with friends regularly,” said Nguyen Xuan Tu, a 29-year-old Quang Vinh worker who rides a motor scooter, like many Vietnamese. “But now, with the high cost of gasoline, I don’t go out too much.”
Two opposing trends have made it hard to gauge the true extent of inflation in the developing world.
Very heavy investment in new factories, especially in China but increasingly in emerging countries like India and Vietnam as well, has created a lot of extra industrial capacity. That could drag down prices somewhat if the American economic slowdown causes a global slump in demand.
But many developing countries, led by China and India, have blunted the full impact of inflation so far through a combination of price controls and subsidies, and more countries are joining them — Vietnam has imposed price controls on transportation and gasoline over the past week, for instance.
As businesses figure out ways around price controls, like charging the same while shrinking the quantities in each package, and as the cost of subsidies may become unsustainably high, inflation may worsen.
The NYT also reports that Advanced Micro Devicess aid it would cut about 1,650 workers — about 10 percent of its work force — because of deteriorating business conditions across its units around the globe.
The layoffs may be one of the first signs in Silicon Valley of an economic slowdown that has already affected other industries in the United States. As recently as December, many Silicon Valley executives were stating that they believed that high technology industries would be saved from a downturn.
Several analysts said that A.M.D., based in Sunnyvale, Calif., was facing problems largely because of a resurgent Intel, the world’s largest chip maker. A.M.D. lost market share to Intel last year and has also delayed shipping a new line of microprocessors, though it has said it has worked out those problems.
“I think this is mostly about A.M.D.,”said Martin Reynolds, a vice president at the Gartner Group, a market research firm.“I don’t think the tech economy has gone in the tank yet, but we will be watching closely as firms report in the coming weeks.”
There are some signs of a slowdown among tech companies. Intel has said weaker pricing for NAND flash memory would affect its profit margins. And on Monday, iSuppli, a market research firm, said it cut its forecast for the global NAND flash memory market. It expects revenue will grow 9 percent in 2008, a sharp revision from its earlier prediction of 27 percent growth. ISuppli blamed weaker consumer spending. It singled out less demand for flash memory from Apple, maker of iPods and iPhones, and SanDisk, the single biggest buyer of flash memory.
A.M.D. makes chips for computers and servers and has a minority stake in the flash memory maker Spansion.
A.M.D. also revised downward its financial guidance to Wall Street analysts, stating that it expects its revenue for the first quarter, which ended on March 29, to be about $1.5 billion. That is an increase of 22 percent over the first quarter of 2007 but a 15 percent decline from the previous quarter. Analysts surveyed by Thomson Financial had forecast higher quarterly revenue, at $1.62 billion.
The company said it had not yet estimated the revamping charge it planned to take as a result of the new round of layoffs, which a spokesman said would take place before the beginning of September. A.M.D. said that it would offer details when it reported first-quarter financial results on April 17. Analysts have estimated a net loss of $263 million, or 42 cents a share.
The company, which has its most advanced factory in Dresden, Germany, and other offices in Austin, Tex., has about 16,800 employees.
