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The Guardian: Bid talk pushes FTSE 100 near to all-time high

EXTRACT: BP added 11.5p to 582p on continuing talk of a possible merger with rival Royal Dutch Shell, whose A shares rose 45p to £18.76. Such a merger was an unfulfilled dream of ex-BP boss Lord Browne. However after the market closed Shell announced it had bought back 450,000 A shares for cancellation yesterday, something it would not be allowed to do if any serious talks were under way.

THE ARTICLE

Nick Fletcher
Saturday May 19, 2007

One day there will be a trading session without a major company being tipped as a takeover target. Yesterday was not it.

Such was the volume of speculation, leading shares jumped to a near seven-year high. Punters were piling into insurance group Royal & SunAlliance on a revival of the rumour that Finnish rival Sampo might be about to pounce. Axa was an alternative suggestion for a possible predator. Traders were also talking about an analyst note from Credit Suisse, which raised its target price from 129p to 146p. The note was hardly overwhelmingly positive though. “We are reiterating our underperform rating,” said Credit Suisse. “RSA looks expensive compared to the other UK non-life companies.” But bid speculation won out and RSA rose 3.3p to 172.1p with 38m shares traded.

Also on the takeover tipsheet was Cadbury Schweppes, up 11.5p to 685p following reports that about a dozen companies – including private equity businesses – had expressed interest in buying its US drinks division for some £8bn. If true, this figure is much higher than analysts’ forecasts.

“The sum of the parts valuation for the two individual businesses [drinks and confectionery] points towards 700p a share,” said David Hallam at Evolution Securities. “However, a bid premium for either or both of the businesses could push the valuation substantially higher.”

BP added 11.5p to 582p on continuing talk of a possible merger with rival Royal Dutch Shell, whose A shares rose 45p to £18.76. Such a merger was an unfulfilled dream of ex-BP boss Lord Browne.

However after the market closed Shell announced it had bought back 450,000 A shares for cancellation yesterday, something it would not be allowed to do if any serious talks were under way.

Meanwhile oil and gas exploration group Cairn Energy climbed 48p to £17.83 after Citigroup upgraded its recommendation to buy and raised its price target from £17 to £21.25. It said shares in Cairn, which has been linked with a possible takeover by Malaysian state-owned firm Petronas, were “a free option on bid potential”. It said the speculation “may well prove ephemeral, but should reignite investor interest”.

The rises in the oil companies came despite the price of crude dipping back to below $70 a barrel after Thursday’s 3.3% surge on supply concerns.

Metal prices were also lower, particularly copper, on worries about demand from China and concerns its stock market was in the middle of a bubble which could soon burst. Chinese authorities also edged up interest rates and the level of reserves banks need to hold. In addition they announced plans to allow the yuan to trade more freely by increasing the bands within which the currency is allowed to rise or fall from 0.3% to 0.5%. It all comes ahead of a key trade meeting with the US in Washington next week.

Mining shares shook off these concerns, however, with Vedanta Resources rising 64p to £14.76, Antofagasta adding 5.75p to 545.75p and BHP Billiton 18p better at £11.98. Numis analyst John Meyer said: “Equity prices appear to have a certain resilience to the metals price move in the current market. [The present] commodity prices still suggest significant earnings upside for copper producers.”

Overall the takeover talk helped the market end the week on an upbeat note, with the FTSE 100 adding 61.6 points to 6640.9. This is the highest level since 7 September 2000 when the index closed at 6689.2. And it is now just over 300 points shy of its all-time closing high of 6950.6, reached on 30 December 1999.

Fears of more rate rises hit retailers however, after official figures showed a 0.1% drop in sales volumes last month compared with an expected 0.5% increase. A move by HSBC to downgrade Kingfisher and Marks & Spencer from neutral to underweight also did some damage. B&Q owner Kingfisher fell 3.5p to 257.5p although M&S recovered from an early fall to add 2.5p to 743.5p. Argos owner Home Retail Group lost 4.75p to 487p while DSG International – the former Dixons – slipped 1p to 171p.

British Airways lost 14.5p to 487p as, along with its results, it admitted breaching its price fixing rules on fuel surcharges and set aside £350m as a provision for possible fines and claims.

Furniture group ScS Upholstery paid for issuing poor figures and a profit warning at 4.31pm on Thursday evening. Its shares fell 17.25p to 250.25p, with Panmure Gordon downgrading from hold to sell. “Half-year results released ahead of schedule and in the evening are usually indicative of a problem,” said Panmure. “Given the uncertainties over the trading outlook as rate rises finally impact the UK consumer, it could be some time before we are convinced the business has stabilised, and in these circumstances we would avoid the stock.”

To end on a more positive note, medical group Acambis added 9p to 137p after a panel at the US food and drug administration said the company’s data on its experimental smallpox vaccine showed it was safe for high-risk situations. The FDA now has to make a final decision on full approval. Bridgewell analysts repeated their buy recommendation after the news.

Widow’s mite
Hell hath no fury like a Scottish Widow scorned. The investment group, part of Lloyds TSB, has managed the funds for the UK Balanced Property Trust since 2002. In February the Trust terminated this contract in favour of another investment manager, Cordatus Partner, which took over in May. But Scottish Widows has a 10.5% stake in the Trust – and other Lloyds firms hold another 7.5% – and it has now called an extraordinary general meeting to replace the board and wind up the Trust. If it succeeds, investors can cash in their shares, or transfer them to a new fund to be managed by, who else, Scottish Widows. The Trust, up 17.25p to 154.25p, was taken aback but said it had been trying to talk to Scottish Widows about its stake since February. Watch this space.

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http://business.guardian.co.uk/marketforces/story/0,,2083449,00.html

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