Warner sings the blues

I GOT the private equity blues, oh yah...

Warner Music, the American entertainment giant that has been a seven-year suitor for Britain's EMI, must have felt the ground shift from under its feet yesterday evening.
Terra Firma made an agreed £2.4 billion cash takeover bid for EMI, Guy Hands's private equity vehicle completely outflanking Warner on financial and regulatory grounds at a stroke.

It looks all over bar the singing.
For years, EMI and Warner have circled each other with merger intentions, the world number three and number four respectively in the music sector wanting to make some headway on the big two, Sony and BMG, whose own proposed merger is being scrutinised by the European Commission.
But the regulators have always turned a hard face against the big four in the music arena becoming a big three, and Hands has seen his opportunity.

Terra Firma looks set to stack up the financials of the deal by securitising EMI's music publishing assets, the most reliable aspect of the business. That will help pay off the considerable borrowings involved.
EMI has virtually installed a revolving door for chief executives in recent years as relentless costcutting has failed to offset destabilising phenomena such as internet piracy.

Profit warnings have been regularly reprised. The share price has fallen off a cliff - and not of the Richard variety.
Hands and Terra Firma give a demoralised and weak EMI a way out of a chronic morass, far from all of it of its own making.

This looks a deal whose time has come and which takes regulators out of the music equation. And not before time either. Music industry consolidation has been a concept album and no mistake.

SMALL wonder that cleaning and maintenance group Mitie is seeing its shares knocking around record highs.
The stock has risen not far off a third in the past year as the business has fired on all cylinders.
Mitie is robustly profitable, as yesterday's annual figures show; it has a strong order book topping a billion pounds; and has already secured three-quarters of its revenue for 2007-8.

The shares put on a further 2 per cent yesterday to 257p, as a number of brokers increased their price target for the stock on the back of the strong business performance. Numis Securities, for example, thinks the shares could go to 298p; some think that is a conservative forecast.
Part of yesterday's rise was due to Mitie saying it would look to return more cash to shareholders if it could not find suitable acquisitions.

Somehow I don't see it. Organic growth at Mitie might be decent at more than 17 per cent, but the company has always shown itself alive to acquisition possibilities and there are likely to be more out there to mop up the £500m or so that it has to invest.
Last year the group splashed out £75m for Rentokil's security guard operation, and there are likely to be similar opportunities.

Mitie is now also eyeing Europe for further expansion. This doesn't put a further share capital return to investors out of the question. But the balance of probabilities suggests that expansion is where the board's heart, under new chief executive Ruby McGregor-Smith, lies.

Mitie's cleaning and maintenance business, which has the cleaning contracts for the Ibrox and Celtic Park football stadiums, is pretty defensive in bad times. But even it was affected in the extended stock market downturn early in the new millennium. As companies cut back spending anywhere they could, shares in the cleaning and maintenance sector were not immune.

At that time, Mitie's shares fell quite sharply, at one stage touching 80p. But they have recovered as wider business confidence among its customers has returned in recent years.
Admittedly, profit margins at the group are not rooting up any trees at 5 per cent.

That is partly due to strong competition in the sector, and the integration of the Rentokil subsidiary.
But margins have never been particularly brilliant in the maintenance world. Like supermarkets, travel companies and construction, the sector tends to be all about volume, volume, volume, to drive corporate health.

In that regard, looking at Mitie's exceptionally strong order book and wide array of customers, there does not look much to worry about at all. Buy.
The maker of Irn-Bru, Strathmore water, Tizer and Orangina said in an AGM statement it would continue to invest in brands and infrastructure.

Barr shares closed last night up 75p - or 5.6 per cent - at 1,425p.
Thus Group, the telecoms provider, shot up 12.

4 per cent, or 21p, to 190.5p after it said earnings before interest, tax, depreciation and amortisation on a like-for-like basis rose by a third to £42.9 million, ahead of market forecasts.

Ardana moved forward after the US Food and Drug Administration granted orphan drug status for the oral growth hormone Secretagogue, which Ardana is developing as a diagnostic for growth hormone deficiency in adults. The shares were 2.5p higher at 113p.

The banking sector was showing signs of nerves, with the prospect of higher interest rates putting banks under pressure.
HBOS closed 7p down at 1,069p, while Royal Bank of Scotland closed 0.5p lower at 653p.

Oil shares benefited from merger speculation and a higher oil price. Cairn Energy was 42p higher at 1,825p.
F C Asset Management was another notable riser, up 6.

5p - or 3.5 per cent - to 193p.
THE European Medicines Agency is likely to decide in June whether GlaxoSmithKline's experimental cervical cancer vaccine, Cervarix, should be approved for sale, says a source familiar with the situation.

Cervarix, one of the company's biggest new drug hopes, will compete with Merck's Gardasil, which is already available in leading markets.
GSK, Europe's largest drugmaker, reiterated last month it aimed to launch Cervarix in Europe before the end of 2007 and some analysts have speculated a decision from the EU drug agency's expert panel could come as early as this month.
The agency's committee for medicinal products for human use meets every month in London and will announce the results of its latest deliberations on Thursday or Friday.

PORK and animal-feed producer Cranswick has agreed to sell its pig-feed operation, the company's original activity when it was founded more than 30 years ago.
The Yorkshire firm, which was set up as a pig-feed seller by a group of farmers in the early 1970s, said it would sell the division to BOCM Pauls, one of the UK's biggest animal-feed suppliers, for an undisclosed sum.
Executive chairman Martin Davey said: "The trading environment for this business has been particularly challenging in recent years following the substantial reduction in the UK pig herd.

"
The division generated a small profit in the year to the end of March, on turnover of £25 million, he added.
Cranswick, which began expanding its activity base from pig feed in 1998, will now focus primarily on its premium food business and its smaller pet-food and pig-marketing arms.
The company reported pre-tax profits up 12 per cent at £32.

4m for the year, on sales up 19 per cent at £525m. It increased its final dividend by 10 per cent to 12.2p and said the start of the current year had been encouraging.

Panmure Gordon upgraded the firm to "buy" from "hold", citing a recent fall in the share price.
FOLLOWING a recent visit to the company, Charles Stanley is recommending Devro as a "buy" for the "first time in years". The share price has fallen 20 per cent from the putative 150p bid level announced in January 2007.

Although the broker said there was little prospect of material growth in any of Devro's mature territories, it said it was "intrigued" by the prospects in the less developed eastern Europe and Asian markets.
ABN Amro continues to believe BA will be a net loser from the Open Skies pact, despite lengthy arguments to the contrary. The broker's full-year forecasts for 2008 for the company, which is currently valued at about £5.

8 billion, are broadly unchanged, but it sees greater downside risk given softening revenue. ABN has put a "sell" recommendation on the shares and reduced their target price from 430p to 400p.
MEDIA group ITV was kept at "neutral" by JP Morgan though it lowered its 12-month price target to 114p from 120p, because of reductions in its forecasts.

The broker also reduced its estimate on earnings per share by 13.4 per cent in 2007 and by 9.2 per cent in 2008.

It added that, on 2007 and 2008 multiples, ITV was by far the most expensive free-to-air broadcaster in Europe. In recent months, ITV has been seen as a possible takeover target.
EAGA provides a range of services to address the social, environmental and energy efficiency objectives in the public and private sectors in the UK and overseas, notably in North America and India.

The company claims to fit or repair a central heating system every minute of every working day, and says its energy efficiency measures have been installed in more than five million homes since 1990.
This is an area in which EAGA is in the vanguard. It is a unique business with a proven track record, aimed at eradicating fuel poverty in vulnerable households.

Much of its revenue currently comes from government contracts which, while low margin, are also relatively low risk.
However, in recent years, EAGA has diversified, providing its services to the growing social housing sector.
If the prime minister elect is true to his pledge there will be five new energy efficient towns in the coming years, although hopefully not on the flood plains so beloved by some members of the current administration.

EAGA has an initial price earnings ratio of about 14 and offers a dividend of some 2 per cent, well covered on conservative estimate to future earnings.
The company is keen to use the proceeds of its flotation to remain a leader in the residential energy efficiency arena, working closely with local authorities and social housing providers.
Significantly, all its employees are partners and this policy is likely to continue in a similar way to that adopted by John Lewis, which has proved extremely successful in staff motivation.

• The value of your investment could fall and you may get back less than you invested.
You should take professional advice if you have any doubt about the suitability of this company for your portfolio.