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Weekly Wrap: Glencore, Xstrata, Barclays & BSkyB

VIDEO: A look at the top market-moving events of the week

Holly Cook 29 June, 2012 | 8:37AM

Stocks Mentioned in this Video:
Glencore International (GLEN)
Xstrata (XTA)
Barclays (BARC)
Standard Chartered (STAN)
HSBC Holdings (HSBA
Lloyds Banking Group (LLOY)
News Corp (NWSA)
British Sky Broadcasting (BSY)

Related Articles and Research:
- Latest Xstrata-Glencore Analysis
- Analyst note about News Corp’s Split (Requires Premium subscription)
- Diamond Faces Pressure After Libor Scandal

Video Transcript:

Holly Cook: Welcome to the Weekly Wrap. As per usual, we've got three market news items for you this week. We'll be starting with Xstrata and Glencore, then we'll move on to Barclays and other banks, and we'll finish up with News Corp and BSkyB.

Alanna, why don't you kick us off with the Xstrata-Glencore news?

Alanna Petroff: Sure. So, Glencore is looking to takeover Xstrata as we all know, but now the deal could be scuttled because the Qatar Investment Authority has been building up a stake in Xstrata, they own about 11% now, and they just came out this week and said, you know what, I think the deal is not paying enough for Xstrata. So, Glencore was offering 2.8 of its shares per Xstrata share, and the Qatar Investment Authority is now saying we want 3.25.

Cook: It's a pretty fair jump.

Petroff: Yeah. It's about a 16% jump. So, now Glencore is a little bit worried about this. Apparently there have been meetings between the investors and Qatar is not backing down. So, we're not quite sure what's going to happen, but our analyst, our Morningstar analyst says right now, “based on a standalone valuation of each entity, we think an exchange ratio of 3.5 would most fairly capture the value both sides bring to the table.” So, apparently we think that Glencore could be paying even more.

In the meantime, right now, Glencore has adjourned its Annual General Meeting, they've put it off. The next meeting for Xstrata has been put off as well, as they sort through these issues, and they're not commenting to the media quite yet.

Cook: Okay. So, it's a wait-and-see situation?

Petroff: Yes.

Cook: Okay. Let me tell you what's been going on in the financial sector then. So an investigation has been going on, conducted by the UK and the US regulators, into Barclays, JP Morgan, RBS, Deutsche Bank, a whole bunch of banks. We've actually seen this week, Barclays' shares, in particular, tumble. They fell more than 17% at some point on Thursday, and the reason why is that they have actually been fined $450 million this week. What it's all about is that essentially a group of traders at Barclays are accused of trying to manipulate the interbank lending rates, so that's the interest rate the banks pay each other when they're loaning money to each other, and it also has a knock-on effect. It effects lending rates around the world, even mortgage rates, so it effects the little man, as well as the big banks. So this isn't just yet another kick in the teeth of the reputation of the banks, but it's also affecting the shareholders obviously.

CEO of Barclays, Bob Diamond, has actually said he is going to waive his 2012 bonus, so…

Petroff: Sure. Good.

Cook: It's not exactly going to make the shareholders any happier though.

But I do think it's worth point out that, okay, so Barclays' shares really had a bad week. However, if you believe in the fundamentals of the company, if you think for example that the £1.75 that you pay per share for Barclays at the moment could be – could push back up to sort of pre-crisis levels, then it could be worth taking share price weakness as an opportunity to up your holdings. Because our Morningstar analyst, for example, actually has a fair value estimate closer to £3 per share for Barclays. So as per usual, bad news is potentially a buying opportunity, but within the financial sector, Erin Davis, our analyst, actually much prefers Standard Chartered and HSBC amongst the European banks, because they give you that emerging market exposure without necessarily giving you the eurozone risk. And of course, the investment banking risk as well.

Petroff: Yes. That's what she's concerned about with Lloyds and Barclays.

Cook: Absolutely. So, tell us about the final item then.

Petroff: Okay. So, what we have is the Murdoch empire is splitting. News Corp has announced it's going to split itself into a publishing business and an entertainment business, and our Morningstar analyst, Allan Nichols, thinks that this move increases the likelihood that News Corp, or whatever News Corp becomes in the future, could still buyout BSkyB. This is what he has to say.

Allan Nichols: By separating them out, you have separated the media that has a clean reputation from the newspapers that don’t, and so that that potentially reduces the threat from the government, particularly there have been some threats that they would actually require News Corp to sell off British Sky Broadcasting. I think that threat certainly has been reduced. But it doesn't address media plurality really, because you still have the Murdoch family that controls both the newspapers and the media, and so has a huge influence over the total aspects of the British media, and how consumers can receive news. So, I don't think that has been addressed as much.

For that to truly be addressed, the Murdochs would actually need to reduce, I think, their holdings in the newspapers and that is unlikely as long as Rupert is still alive, as he has a long term history of loving newspapers.

Petroff: If you're looking to buy into BSkyB right now, Allan Nichols was also saying that you want to look at the fundamentals of the company, not necessarily the takeover. And he thinks right now the fundamentals are good and the stock is reasonably undervalued. Not cheap, but a decent value for shareholders if you're interested in this area and this sector.

Cook: So, it actually seems that we've kind of got a bit of a theme here, which is the fundamentals of stocks.

Petroff: Yes, definitely.

Cook: So, it's worth remembering, if you're investing in stocks, take a look at the fundamentals, try and pay a little less attention to the daily market movements. Thanks for watching.

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About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk