Financial Market

London listed mining giant Anglo American has today released news that it will be “reviewing all options surrounding the development” of it £202 million platinum mine in Zimbabwe amidst the growing political unrest in the region.

Anglo American mines precious metals, diamonds, base metals, coal and industrial minerals from mines across the world.

The recent decision to invest hundreds of millions of pounds in the Unki platinum mine in central Zimbabwe has however been revoked after it was met with heavy criticism by political opponents of Robert Mugabe who said that proposed operations would only support his regime.

After being intensely scrutinised by the media and pressured from politicians and shareholders, Anglo American has now said that it will review the project, but went on to say it would not abandon the 650 employees at the mine.

Originally Anglo had said of the proposed plans “The responsible development of the Unki mine will create a long-term viable business which will be important to the economic future of Zimbabwe for years to come,”

A company statement now said that “The company is monitoring the situation in Zimbabwe very closely and is reviewing all options surrounding the development of the project.”

Anglo has now been told by the Mugabe regime that if the proposed plans did not go ahead then the Mugabe administration would take control of it.

In addition to the companies review of it operations in Zimbabwe, Anglo American is also to be investigated by the foreign office to ensure that the investment made in the project did not breech imposed sanctions.

Prior to the announcement to review operations in the country, Anglo had bucked the trend of British businesses based in the region that have been closing down operations or suspending them until Mugabe is out of power.

Shares in Anglo American fell 3.2% to £33.14 during afternoon trading, with rival miner Rio Tinto also down 2.9%.

The UK’s largest commercial broadcaster ITV Plc has announced today that annual profits for 2007 fell by 35% to £188million on the back of lower ad sales.

Net income for the broadcaster dropped to £137 pounds from £219 million the previous year. Overall sales at ITV fell 4.5% to £2.08 billion, however first quarter 2008 sales are predicted to rise 1.9% whilst revenue from the ad market will see an overall decline by 0.7%.

The broadcaster has also seen its shares face increasing pressure over the past twelve months, hitting record lows in January and February. It is thought that the ongoing argument that has left BSkyB’s 17.9% stake in the firm unresolved, has lead to advertisers becoming more cautious and as such having a direct impact on profits.

In December the competition commission recommended that BSkyB sell its stake in ITV which was later upheld in January, however BSKYB is due to challenge the Competition Commission’s decision to force the satellite broadcaster to sell down its stake.

On the back of the profit news ITV has stated that a recovery procedure is already in place and advertising revenues have stabilised.

The broadcaster who airs shows including Coronation Street and X Factor has also increased its combined shares of viewing audiences for the first time since the early 1990’s. Thanks to the addition of digital channels and investment in programming, ITV’s combined share increased to 23.3% from 23.1% in 2006.

`The viewers are finally coming back to ITV. The results and audience share gains counter the `myth that ITV is a business managing decline.” ITV executive chairman Michael Grade

ITV have also made plans to expand web content offering in 2008, as well as cut costs by closing local news rooms and selling the company’s stakes in businesses that aren’t deemed strategic.

It was also announced last week that former head of BBC Peter Fincham was due to join ITV as Director of Television, after ITV executive chairman Michael Grade extended his contract with the company until 2010.

In September 2007 Microsoft lost its appeal against a £343 million fine imposed by the European commission after a long running competition dispute. According to the European court Microsoft had abused it market position and froze out rivals in server software and products such as media player.

After the ruling Microsoft was ordered to ensure its products could operate with other computer systems by sharing information with rival software companies. It was also ordered to provide a version of its Windows operating system that would be available without Microsoft’s Media Player software.

In the latest development in the case the European Commission this week further fined the software giant for not adhering to the sanctions imposed by the original court ruling for its anti-competitive behaviour.

As part of the development Microsoft must now pay a record £680.9 million because of its failure to comply with the 2004 ruling. The fine for Microsoft comes on top the 2004 and 2006 fines of 280m and 497m euros that were issued respectively.

“Microsoft was the first company in 50 years of EU competition policy that the Commission has had to fine for failure to comply with an antitrust decision,” - Competition Commissioner Neelie Kroes

It was only last week that the Microsoft announced to open up some of its leading software, agreeing to publish several APIs for Vista and Office 2007 and provide free access to them, helping non-Microsoft developers interact with Microsoft products.

“Open access to this documentation will ensure that third-party developers can connect to Microsoft s high-volume products just as Microsoft s other products do” – Microsoft

In addition to this Microsoft will free up the protocols around its client and server software, amounting to 30,000 pages of documentation. With this announcement Microsoft has also pledged not to sue open-source non commercial versions of those protocols.

Microsoft isn’t however out of the woods just yet, and with two similar anti-trust cases recently launched against it regarding similar issues more fines could well be on there way.

The first of these cases examines whether Microsoft is abusing its dominance of the PC market to secure market share of the internet, the second will investigate Microsoft’s continued incompatibility with rival products.

On the back of the Commodities outlook for 2008 article at the end of January Financial Market predicted “mergers in (base metal) industry related firms could be the trend of 2008 with rising costs, labour shortages and generation of cashflow fostering the perfect conditions for mergers.”

It seems this has been demonstrated two weeks into February with mining firm Rio Tinto being unveiled as a potential hostile takeover target for rival BHP Billiton.

With £3.8billion profit for 2007, a 1% growth on 2006 profits, Rio Tinto has certainly benefited from surging commodity prices, leaving it in a good potion to fend off the hostile bid.

With demand for raw metals such as copper and coal from nations such as China driving consolidation in the sector, Anglio-Australian giant Rio Tinto rejected a £78.8billion takeover offer from its rival.

With commodity prices remaining high and production reaching record levels Rio’s chairman Paul Skinner said BHP Billiton needed to raise its offer “considerably” before the firm would enter talks.

“For us to become persuaded by the arguments for the combination we would need to see an offer for our shareholders that offers higher value than we could achieve ourselves” - Paul Skinner

BHP Billion’s bid offered 3.4 shares for each Rio Tinto share, already an increase from the unofficial 3 to 1 offer in December 2007, however BHP Billiton has warned it will not sweeten its offer.

On Friday news broke that Microsoft have tabled a bid to buy rival search company Yahoo for a figure of $44.6bn in cash and shares, 62% above Yahoo’s closing market share price on Thursday.

The offer was presented in a letter to the Yahoo board and came only days after revenue forecasts had been cut, and the company had subsequently committed $300m to try and revive the business in 2008.

The two competitors have found it increasingly difficult in the field of internet search and online advertising in recent years with the increasing dominance of third rival and market leader Google. Microsoft’s take over would merge the two rivals and create an entity that then could better compete with the market leader.

A statement from yahoo upon confirmation of the bid from Microsoft read that yahoo would evaluate the proposal “Carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”

With the increasing belief by many that Microsoft’s existing business model becoming more unfeasible in the internet age, this offer indicates a radical shift in how Microsoft perceives the internet and its own future within it.
Over the last twelve months major search rival Google has began to offer free online software alternatives for much of Microsoft’s offerings, challenging the enterprise business model the software giant in built upon.

Currently Microsoft makes the majority of its money by selling license fees to its impressive software packages installed on PCs and servers. Google’s services available freely over the internet severely threaten this.

Coupled with the increasing threat to its core industry, the change in thinking demonstrated by Microsoft is undoubtedly due to the gems in Yahoo’s online advertising empire, a sector that Microsoft has thus far struggled to move into with any great success. Yahoo also offers a range of online applications that could bolster Microsoft’s existing Windows Live online services for both businesses and consumers.

There is the chance of a rival bid for Yahoo still being lodged, possibly from a media organisation, but there are few could offer a similar price to that of which Microsoft is offering. Rupert Murdoch’s News Corp. is one media conglomerate that could potentially do so, and a rival bid from Google is not off the table quite yet.

If Google do not launch a counter bid to Microsoft’s offer the search market leader will certainly delay proceedings by filing anti-competitive legal action against Microsoft in the hope of derailing any deal taking place, much in the same way Microsoft did to Google over DoubleClick last year.

It is already understood that Google executives have asked for a political strategy to challenge the acquisition of Yahoo which could threaten Google’s own dominance of online advertising. How far Google will go with any challenge is as yet unknown.

If the deal was to go through despite a challenge from Google, it would certainly consolidate the market and make two clear rivals, setting up a credible competitor to market leader Google. We would then be left with a true Microsoft versus Google scenario.

Leaked minutes today confirmed that the Bank of England’s Monetary Policy Committee voted 8-1 in favour of keeping interest rates on hold in January, although the Bank of England is still widely tipped to make a quarter point cut to 5.25% next month.

The leaked minutes demonstrate the Banks reluctance to follow suit after the FED’s three quarter point cut on Tuesday, with increased concern about the risk of spiralling inflation in the UK.

A reluctance to follow suit not only being shown by the Bank of England, but by other European central banks as well. Suggestions that European central banks are also reluctant to slash interest rates in a similar style to the FED created knock on effects in Wednesdays trading which saw US and European stocks fall further.

The worry is that slower economic growth will hurt corporate earnings, and stocks fell accordingly across all sectors. With Central Banks ruling out immediate rate cuts to boost economies, it means that slowed economic growth could be the trend for early 2008 as the US and UK fight to stave off recession.

“The uncertainty about corporate earnings growth in 2008 has risen, and not only in the financial sector.” said Matthias Schellenberg, managing director at ING Investment Management.

In the first business post written for Financial Market, we highlight the recommendation made today by the United Kingdoms Competition Commission ordering British Sky Broadcasting to sell a significant proportion of it shares in competitor ITV PLC. Under the recommendations BSkyB must reduce its share stake from the 17.9% it currently owns to below 7.5%.

The recommendation by the Competition Commission will now go to the Secretary of State for Business, Enterprise and Regulatory Reform who has until the 29th of January to reach a conclusion.

As well as the share reduction the Competition Commission also pushed for pledges that BSkyB would not push for a seat on ITV’s board, but didn’t go as far to recommend that BSkyB sell its entire stake in its competitor.

As ITV’s single biggest stakeholder, claims have been made that by having such a large stake in the company it restricts competition and isn’t in the public interest. It was thought that BSkyB could also influence ITV strategy after it acquired the £940 million stake in November last year, and was seen as an attempt to thwart a potential take over by NTL. NTL latter pulled out of takeover talks and BSkyB’s moves were heavily criticised by rivals BBC and Channel 4.

BSkyB had suggested it transfer its voting rights into a trust but the Competition Commission deemed this would be too difficult to enforce.

Analysts have said that although BSkyB will loose a significant sum if forced to sell of its shares, the company has still succeeded in preventing a takeover of the free to air broadcaster.

At current share prices the sell off could cost BSkyB around £200 million as the value of ITV’s shares have dropped since it bought its stake in the company. BSkyB paid a 17% premium when it first invested with what it called a ‘long term investment plan’, and shares at 0900 GMT were trading at 84 pence, far off the 135p a share it paid.

Graph showing ITV shares over the last 2 years -Source www.lse.co.ukBSkyB is itself owned 39% owned by a subsidiary of Rupert Murdoch’s News Corp.