Oil and Vinegar
JOHN BULL Equities began the week with their worst day for six weeks, the Financial Times
Ordinary Index falling 5.9 points to 378.5.
The market did not like Professor Galbraith's talk of another 1929 crash, pub- lished in a Sunday newspaper; it was not overjoyed at the ministerial changes (is Wedgwood Benn now Minister of Inter- vention?) and in any case it prefers gilt- edged securities (see Nicholas Davenport). The second boom in Australian nickel shares is well under way. Star turn Poseidon (up from 20s. to over 200s. last week) has now run into some profit taking, which is natural enough. Poseidon has also dragged a number of other nickel shares up with it —in particular North Flinders (which has a holding), Vam and Carr Boyd.
Insurance shares are quiet at the moment but they could come in for more favour- able attention soon. The reason is that the major offices are on the brink of raising their rates for motor business. I hear talk that the increase could be as much as 15 p.c. General Accident is a particularly interesting case. Its home motor account is so large that a rate increase would work wonders for the shares, which have been depressed recently.
The market is still merger conscious. Among the many shares affected by such considerations are Dufay which, though it has fallen on hard times, has a virtually brand new paint factory on its books; London Brick, which in terms of profits record and shareholdings looks pretty defenceless against a good offer and William Cory, whose share price moves up steadily against the tide day after day.
These are pretty unnerving days for holders of oil shares. In the past month shareholders in BP have had to weigh up the half-time results (good) and forecast for the year (not so good); the great Alaskan auction (good but the stock market was dis- appointed) and now the news that the com- pany's merger with Standard Oil of Ohio has
run into anti-trust difficulties (bad if true). As I write, there is considerable confusion about the American Justice Department" attitude. Its hostility is softened by it, decision not to seek an injunction to prt vent the exchange of stock scheduled for today which is the first stage of the proposed merger. And certainly there will be some State Department pressure on the Justice Department to find a compromise solution because if the BP merger is stopped, there could be unpleasant consequences for American business in Europe.
At all events, now the BP/ Sohio merger is in question it is worthwhile recalling what the importance of the proposals are. The initiative is intended to provide BP with a means of raising the huge amounts of cash needed both to develop its wells in Alaska and to get the oil down from the Arctic wastes to the lucrative United States mar- kets. The total cost could amount to $1,500 million. Buying Sohio (in practice selling most of its assets to Sohio in return for shares which would eventually give BP over half the equity) would furnish the group with the cash-raising vehicle it requires. It would also provide BP with extra manage- ment strength wanted to knock the 9,500 American service stations it has acquired into shape. BP without Sohio would have to raise cash on its own—not impossible, because if the oil is there (as it is) the bankers will put up the money, but not so attrac- tive, because the terms could be harsh and could mean that BP would have to float off some of its North American equity on the open market.
Burmah Oil has also been in the wars, not only because it owns a very large chunk of BP'S equity (just under one quarter) but because its latest profits statement is pretty miserable. Profits from trading are down as a result of pressure on European product prices. And Burmah is finding it tough work to get a foothold in the British petrol market. Moreover its heavy capital expendi- ture programme has pushed up interest charges. Burmah has also been bought recently on hopes that it would follow BP into the United States market. But there again anti-trust legislation has proved a barrier.
ffolkes's industrial alphabet S is for Salesmanship
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