Elements IFA - Female Financial Advice, Financial Advice for Women - A Corporate Soap

It’s not often you get some “soap opera”- like antics in financial services but last week’s finale to the Corus takeover had some style to it. It was finally agreed that in order to bring the process to a final decision, an overnight bidding process would be used and as a result we had rival bids coming in up to and just after midnight. The winner was eventually decided when, in a ninth round of bidding, CSN, the Brazilian steel manufacturer put in a final offer just after midnight only to be trumped a few minutes later by the Indian TaTa group. Such nocturnal drama is something we don’t often get to see, as usually such deals would be agreed behind closed doors.

The main issue around this bid though has been the price. When this first began, a figure of £5.50 per share was seen to be fair value and anything north of that was regarded as somewhat steep. Before the final coup de grace, the Corus share price was £5.65 and therefore the market was not anticipating a significant rise from there. Thus a final winning bid of £6.08 was a surprising jump in value. Have they overpaid?

The market price would imply yes but, when compared to some recent acquisitions, then maybe not. Both the Russian company Evraz with its recent US acquisition, and Mittal’s purchase of Arcelor came out at a higher cost per tonne of steel production, so maybe it is they who have overpaid? The concern must be though that this recent excitement in the steel industry may be pricing deals at the top of the cycle for demand and that if the global downturn extends for any period of time, then prices may fall back. This may also be further exacerbated by China now becoming a more significant exporter of steel – a remarkable turnaround in just four years.

There was a fascinating article in last week’s FT by Tony Tassell in which he highlighted some of the key statistics around how far this equity bull market has run. He pointed out that as at last Wednesday, the Dow Jones Industrial Average passed its 137th trading day without a correction of 2% or more, and that apparently this has been the second longest stretch since 1953/4. Additionally it would appear that the Dow has now run 53 months without a movement of 10% or more – so are we waiting for the elastic to snap, or is this just a continuation of a confident market?

Tony went on to highlight one signal that could prove significant and one which we should certainly take account of, namely the ratio of the market’s price earnings multiple to its earnings growth rate – or in English the ratio of the value of the company to its anticipated growth. This is generally known as the Peg ratio and the peg of the US market now stands at 1.83 times - which is regarded as high. Apparently, since 1988 each time this ratio has climbed this high, if not higher than this, the market has fallen over either a 6 or 12 month period, with an average fall of between 8 and 12.8%. Looks like a fair warning to me.

A very timely reminder to us all highlighted by a report from Scottish Widows, that 41% of households (that’s around 10 million) are now falling into the inheritance tax bracket, up from 34% last year. The current level at which IHT is payable is £285,000 after which it’s 40% to Gordon and his chums – unless you do something about it!

And finally……I am pleased to see that liberal attitudes are still being held up as good standards of behaviour. The town of Herouxville in Quebec, Canada (presumably a close knit population of 1,300) has published a declaration of behaviour to its citizens. It states that women will be allowed to drive, vote, dance and write cheques, although I assume this is not all at once. Additionally they can work and even own property. In order to balance out this radical agenda, they have also specified that women cannot be killed by stoning in public (although I am not sure if this means that you could use a gun). Perhaps I should send them a copy of The Guardian?