Financial Times: Royal Dutch Shell surges amid talk of a merger with BP

By Neil Hume
Published: May 18 2007 03:00 | Last updated: May 18 2007 03:00

Royal Dutch Shell was the main talking in London yesterday as shares in the £115bn oil company enjoyed their biggest one-day percentage gain in a year.

After heavy trading, Shell came to rest 3.7 per cent higher at £18.59 as rumours of a tentative merger approach from rival BP, which gained 2.4 per cent to 570½p, swirled the market.

Traders said no one was prepared to dismiss the speculation because both companies had given serious consideration to a deal in the past.

However, sector specialists said the timing was not right, pointing out that Tony Hayward, BP’s new chief executive, had only been in the job for 17 days.

They reckoned Shell’s gain – and that of BP – also owed something to the rising price of crude and investors switching out of mining stocks, which took a real hammering yesterday as the price of copper dropped to a seven-week low on fears of slowing demand from China.

On that note, Xstrata was the worst performer in the mining sector, closing 2.5 per cent lower at £26.75.

Whatever the merits of the merger story, it was the strong performances of BP and Shell that helped the FTSE 100 close 19.8 points, or 0.3 per cent, higher at 6,579.3. Elsewhere, the FTSE 250 advanced 41 points, or 0.3 per cent, to 12,143.6.

Although Shell was the main focus Experian was the biggest riser in the FTSE 100. Shares in the credit checking group rose 3.9 per cent to 598½p after a US rival called Acxiom was taken private in a $3bn cash deal. Traders pointed out that the Acxiom buy-out, which was struck at 25 times forward earnings, came hot on the heels of the takeover of Veda, Experian’s closest peer.

They also noted that a private equity bid for Experian was rebuffed by its former parent, GUS, last year.

Life assurer Friends Provident firmed 0.2 per cent to 206p following a report on FT Alphaville that JC Flowers, the buy-out fund run by former Goldman Sachs banker Christopher Flowers, and Standard Life, up 2 per cent at 345¼p, were working on a break-up bid.

Elsewhere, F&C Asset Management, in which Friends Provident owns a 48 per cent stake, dropped 5.2 per cent to 183p. The fall came after Eureko, the Dutch insurer, said it had appointed Morgan Stanley to sell 44m F&C shares, or half of its 19 per cent holding in the company.

Hanson dropped 1.8 per cent to £10.80 as hopes of a counterbid faded with news that HeidelbergCement had bought 125m shares in the market, taking its holding to 29.9 per cent.

Findel, the home shopping and educational supplies group, was the biggest riser in the FTSE 250. Its shares rose 13.2 per cent to 749½p after full-year results exceeded expectations and the company said the results of its strategic review, which could lead a break-up, would be known by the summer.

Emap was marked 5.2 per cent higher at 881p after chief executive Tom Moloney stepped down, just days before the media conglomerate is due to post annual results.

“The management vacuum could encourage private equity approaches in a similar way to ITV last year,” said broker UBS. “This may lead to suggestions that the group could be broken up.”

Rumours of a bid approach for its subsidiary Cairn India continued to provide a fillip for Cairn Energy, which rose a further 3.7 per cent to £17.35.

Housebuilder George Wimpey gained 4.8 per cent to 627p as merger/arbitrage funds bet its proposed merger with Taylor Woodrow, up 0.1 per cent to 502p, would go ahead.

Concerns that the deal could be scuppered by a counterbid had seen the spread between the Wimpey share price and the implied value of the deal reach 17 per cent in the past week. However, yesterday’s buying helped narrow the spread to around 12 per cent.

In the same sector, Barratt Development gained 2.3 per cent to £11.21 as traders built positions on expectations that the company will be added to the FTSE 100 at next month’s quarterly review.

Carphone Warehouse eased 0.5 per cent to 297½p despite talk that its US joint venture partner, Best Buy, could announce plans to buy a 3 per cent stake when Carphone announces annual results next month.

‘Jewel in the crown’ BA lifts of

British Airways climbed 2.3 per cent to 501½p after Goldman Sachs reiterated its “buy” rating and said the airline was the”jewel in the crown”, in terms of attractiveness to potential private equity and trade buyers. The broker also predicted that BA would make positive comments regarding its balance sheet structure and the potential for restarting dividend payments when it reports annual results this morning.

Copyright The Financial Times Limited 2007

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