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The Times: BP and Shell boosted as oil price pushes FTSE higher

May 19, 2007
Bryce Elder

Oil price strength lent the foundation, while another bout of corporate matchmaking provided the froth as the FTSE 100 index reached its best level since September 2000.

BP and Shell featured in both categories, with shares at their highest this year as supply fears squeezed Brent crude to an eight-month peak overnight.

Rumours also lingered about a merger in the sector, with Shell mooted as a potential partner for Gazprom and Total as well as its UK peer. The oil consolidation story has been this week’s favoured takeover theory among traders, replacing last week’s talk of a union between the miners BHP Billiton and Rio Tinto.

“We are a great believer in the herd mentality of the oil industry. If mega-merger activity kicks off amongst the miners then the action could spill over to the oil sector,” Man Securities told clients. Its analyst rated the chances of a merger at less than one-in-five, but still saw the benefits as not yet priced into the market. BP was up 11½p at 582p and Shell rose 47p at £19.06, even though both were buying back shares, suggesting they had no price sensitive information.

It was the same story for BG Group, which firmed 10p at 780p as Man Securities speculated that it could end up being taken out by Exxon Mobil. The blue-chip FTSE benchmark finished up 61.6 at 6,640.9, just off its session peak of 6,656.3 in relatively thin trading. Natural resources stocks provided more than half the advance, as miners showed no reaction to Chinese fiscal tightening.

Vedanta Resources was the day’s top performer, up 64p at £14.76 on positive broker comment after results earlier this week. BHP added 18p at £11.98 and Rio Tinto was up 10p at £35.10.

Anglo American took on 60p at £28.76 after it hosted a briefing on the demerger next month of Mondi, its paper and packaging division. While nothing new came out of the meeting, analysts noted that management was becoming more confident that metals prices will remain at current levels.

“We perceive a significant change of direction of Anglo strategy which takes into account a materially higher price environment,” Ross Gardiner at JPMorgan told clients “This has implications for the industry as whole. Under such a scenario, many marginal projects become viable, valuation of potential acquisitions targets rise and also as importantly, Anglo’s perception of the value of its own assets increases materially. This may prove a difficult hurdle to cross for any potential suitor wishing to make a friendly approach to Anglo.”

Word that Cadbury Schweppes had received about a dozen expressions of interest for its soft drinks buisness helped lift the confectioner by 11½p at 685p.

Royal & Sun Alliance(RSA) was squeezed higher by 3.3p at 172.1p on takeover talk, with Axa and Sampo both mentioned as potential buyers.

Barclaysgained 14½p at 729p as its chances of securing ABN Amro took a knock. Royal Bank of Scotland was said to have opened talks with Bank of America to carve up LaSalle, ABN’s US arm, on a state-by-state basis.

Kelda was another speculative feature, rising 30½p at 976½p after Merrill Lynch’s infractructure team tipped the Yorkshire Water owner as a candidate for a leveraged buy-out in the next few months.

“We continue to believe that there will be at least one more deal in UK water utilities before the approach of (the next regulatory review) begins to overshadow the sector this autumn,” Merrill told portfolio managers. The broker said once Kelda completes a 210p per share capital return next month, an £11 offer looked credible.

Among the mid-caps, WS Atkins faded 22½p at £11.67 after Teather & Greenwood cut the contractor from its “buy” list on fears that its Metronet unit may be in deeper trouble than investors believe.

New York: US shares surged higher as another round of takeovers prodded investors to continue a largely uninterrupted buying streak. The Dow Jones industrial average closed up 79.80 points at 13,556.50.

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