All eyes on US inflation data, two UK takeovers see plot twist, Nike stumbles on weak outlook

“US inflation numbers dominate the agenda, with the market expecting core prices to have fallen to 0.1% month-on-month in May versus 0.2% in April. The annual change is expected to fall to 2.6% in May versus 2.8% in April,” says Russ Mould, Investment Director at AJ Bell.

“US core PCE price index is the Federal Reserve’s preferred gauge to measure inflation and this new round of data will play a crucial role in the central bank’s decision-making as it looks at when to ease monetary policy.

“The market is likely to react positively if inflation comes in as expected as it would boost confidence that we’re only a stone’s throw away from the Fed cutting rates.”

UK Takeovers: Tyman and Keywords Studios

“We’ve seen shareholders push back on takeover offers several times over the past year or so, hoping that opposition will result in a better price.

“It’s not that investors have always been against a takeover; it’s about avoiding UK-listed companies being gobbled up on the cheap. This pushback has worked on several occasions and drawn out a higher bid.

“Quite often a predator will throw down a cheeky offer to test the water. If it’s clear that the proposal needs to be improved, a better price might soon appear. Ultimately, the bidder is hoping its first bid goes through and it’s struck the deal of a lifetime. This rarely happens, but the bidder may think it’s worth a go.

“It’s not always about getting a better price because the first one was too meagre. It’s also possible to see deals amended for other reasons.

“We’ve now had two more UK takeover situations with price amendments – one which has resulted in a more favourable structure to compensate for negative factors since the initial approach and the other has a twist because the price has been lowered.

“Shareholders in Tyman had expressed concerns about the decline in the share price of bidder Quanex and unfavourable foreign exchange rates since the initial approach for the building products group. That’s now led to a greater proportion of the takeover being paid in cash.

“The other situation is more complicated. It was clear from prolonged negotiations that EQT’s £25.50 per share proposal in May to buy gaming services group Keywords Studios had subsequently hit a stumbling block behind closed doors.

“The deadline to make a formal offer had to be extended, and now it’s been revealed that EQT has been talking down the price seemingly because Keywords has suffered a few negative trading issues.

“Projects have been deferred or cancelled due to weakness in the gaming sector, clouding the near-term outlook for the business. Under normal circumstances this would have been a straight warning, but Keywords’ shares have jumped to trade closer to the new takeover proposal of £24.50 per share.

“The market appears to have been worried about the takeover’s chances from the get-go because the share price continuously traded well below the initial £25.50 proposal. We still don’t have a firm offer, but the fact the board is minded to recommend the new lower price sends a signal to shareholders that this might be the best offer they get.”

Nike

“Rather than stepping up with its latest update, Nike has taken a stumble as a warning on the outlook for the current financial year and the slowest pace of annual sales growth since 2010, excepting the pandemic, reinforces market concerns about the company.

“When Nike produced an ugly earnings report before Christmas its response was to announce a round of cost cutting – a classic corporate response when things aren’t going right. To regain the market’s favour this time round, it may have to come up with something more compelling.

“The company’s digital-led, direct-to-consumer strategy is faltering, its problems in China aren’t going away and it is losing market share to specialist rivals in areas like running.

“China had been an area of real growth for Nike but it has not been helped by the growing tensions between the world’s second largest economy and the West, with some Chinese shoppers boycotting brands from the US and Europe, nor by the Asian country’s uneven Covid recovery.

“But Nike faces problems closer to home, too. Its clothing and footwear is not cheap and to get consumers to part with their hard-earned cash, the company needs to deliver products which really resonate. Recent trends suggest it is struggling to do so, with the successful Jordan brand not enough to sustain things on its own.

“A lot now rests on an investor day in November, with the company likely to face pressure to take radical action – which might include offloading the recently underperforming Converse brand, for example.”

These articles are for information purposes only and are not a personal recommendation or advice.