The FTSE 100 index has shown remarkable resilience amid the ongoing US-Israel war on Iran, with many analysts puzzled why share prices have not fallen further. On Tuesday, the index dipped 1.4%, but it remains up by a couple of percentage points since the start of the year. This performance defies expectations of a downturn given the inflationary energy price shock triggered by the conflict.
Factors Behind Market Stability
Several factors contribute to this relative stability. First, there have been no Iran-related corporate profit warnings so far, though such warnings typically take time to emerge. Second, the FTSE 100 is heavily weighted towards overseas earners, particularly those with exposure to the US economy, which has not faced the same surge in natural gas prices as Europe. Additionally, higher oil prices benefit major constituents like Shell and BP.
Takeover Activity Bolsters Sentiment
Another key factor is the continued occurrence of large cash takeover bids at substantial premiums. A prime example is Swedish private equity firm EQT's pursuit of Intertek, a product testing and quality inspection company. EQT's latest proposal of £58 per share represents a 54% premium over Intertek's share price before the bid was announced. This offer follows earlier bids of £54 and £51.50, and with EQT not labeling its offer as final, there is potential for further increases before the upcoming deadline.
Intertek's Strategic Review
Intertek's business is not directly vulnerable to disruptions in the Strait of Hormuz. Its consumer-facing operations test products ranging from toys to electronics, while its energy and infrastructure division, which samples oil cargoes, may even benefit from US exposure. The bid is essentially a negotiation over price. EQT highlights the 54% premium, while Intertek notes that its shares were at £45 in March before weak growth news, and it has since launched a strategic review to explore separating its two divisions. This potential breakup is a critical subplot, as EQT would likely pursue the same route to unlock value. The energy and infrastructure division is seen as ripe for sale or demerger, with the goal of valuing the consumer operation in line with its higher-rated US rival, UL Solutions.
RBC analysts point to a transatlantic valuation arbitrage as part of the logic. Intertek's board, which rejected the first two offers, must now decide whether a self-directed breakup could yield more than £58 per share. City brokers estimate the sum of Intertek's parts at £60 or slightly more, but EQT offers immediate cash. Notably, Intertek's board does not appear under significant pressure from shareholders to accept, as evidenced by the closing market price of £50.90, which is below EQT's proposal. This suggests that investors' price expectations have not yet been dampened by the geopolitical turmoil.
