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Daily Telegraph: Market report: Equities buoyed up by rising tide of M&A deals

EXTRACT: BG Group added 24½ to 851p after Brazilian newspaper Valor reported that state oil company Petrobras and Royal Dutch Shell had recently discussed a joint acquisition of the natural gas provider, although no deal emerged.

THE ARTICLE

By Ben Bland
Last Updated: 8:26pm BST 09/10/2007

After last week’s glut of mid-market takeovers, the increasing pace of M&A deals drove shares higher after Southern Water was snapped up by a JP Morgan-led consortium for a punchy £4.19bn and Italian oil and gas giant Eni emerged as a surprise suitor for Burren Energy.

Shares in the water companies were boosted after the Royal Bank of Scotland managed to offload Southern Water for more than the £4bn most analysts had presumed was the upper limit in the auction.

Kelda Group, which Credit Suisse has claimed is the “most obvious takeover candidate” in the sector, added 36½ to 929½p, Severn Trent improved 33p to £14.66 and Pennon closed 14 higher at 634½p.

In the oil sector, Burren shares soared by 258p, or 28pc, to an all-time high of £11.80 as Eni revealed it had a £10.50-per-share offer rebuffed by the Burren board.

Burren said it had rejected other offers of up to £11 a share. The news sent buyers scampering to invest in Burren’s peers, with Premier Oil rising 85p to £11.20, Dana Petroleum gaining 66p to £11.87 and Tullow Oil up 15 to 601p.

Elsewhere on the M&A front, international brewing group SABMiller rose 21p to a new high of £14.87 after unveiling plans to merge its US business with Molston Coors. Traders said this sign of further consolidation in the industry was fuelling hopes that Foster’s-maker Scottish & Newcastle would be taken over by Danish peer Carlsberg. Scottish & Newcastle shares ended 15½ better at 637½p. British Land rose 55p to £11.47 amid speculation of stake-building by a Saudi investor.

The shares have fallen more than 30pc since January because of the weakening outlook for the commercial property market. Given that Saudi investors have been investing directly in high-end UK real estate, analysts said it would make sense for them to invest in a property company like British Land that is trading at a discount to its net asset value.

The M&A chatter and a mildly positive reaction to the Chancellor’s Pre-Budget Report helped the FTSE 100 close 74.5 higher at 6,615.4. The FTSE 250 ended 99.1 better at 11,427.8. Northern Rock was far and away the biggest blue-chip gainer, jumping 34.2 to 206.7p, as the flow of positive news prompted more short sellers to close their positions.

The shorters bought back stock they had borrowed from other investors and then sold, in order to make a profit out of a falling share price. Northern Rock is now trading at the highest level for three weeks. BG Group added 24½ to 851p after Brazilian newspaper Valor reported that state oil company Petrobras and Royal Dutch Shell had recently discussed a joint acquisition of the natural gas provider, although no deal emerged.

Friends Provident, the life insurer seeking a friendly merger with Resolution, rose 3.3 to 177p amid renewed speculation that it could be targeted by Zurich Financial Services. Some dealers also said the Takeover Panel might ask Standard Life and Pearl, which are considering bidding for Resolution themselves, to clarify their intentions as early as today.

Wolseley, the plumbing materials group, shed 18½ to 855p after Citigroup sold a chunk of 9m shares at 837p on behalf of a client. Kazakhmys, the Kazakhstani copper miner, was sold off after negative comments from UBS, losing 39p to £14.63. The broker cut its recommendation to sell from neutral on the back of the recent share price strength and concerns about production. Construction and housebuilding shares were hit by a big sector downgrade from UBS.

Mark Stockdale, an analyst at the bank, said that the worsening macro-economic outlook in the US and Europe would take its toll on the European construction industry, particularly in light of the credit crunch. Roofing and insulation supplier SIG slipped 35p to £10.53.

Among the housebuilders, Persimmon eased 25p to £10.15, Barratt Developments fell 15½ to 740p and Redrow dropped 9½ to 397½p.

J Sainsbury, the supermarket group that is considering a 600p-a-share offer from the Qatari-backed Delta Two fund, eased 4½ to 579½p after the Sainsbury family, which owns 18pc of the company, said it may try to block the takeover unless a deal is reached with the group’s pension fund trustees. Societe Generale also downgraded Sainsbury’s to hold from buy.

Chocolate and chewing gum group Cadbury Schweppes ticked up 3 to 600½p ahead of today’s third-quarter trading update. Arnaud Langlois, an analyst at JP Morgan, suggested that the company might be preparing to spin off its £6bn US soft drinks arm via an IPO in the first quarter of 2008.

LogicaCMG, the troubled computer services group, leapt 15½ to 166¾p after poaching highly regarded BT executive Andy Green to be its new chief executive. Debenhams, the department store chain, rose 4½ to 105¾p thanks to a supportive note from Cazenove and the resurfacing of takeover rumours.

Support services group Alfred McAlpine was also the subject of M&A talk, adding 25½ to 523½p as traders speculated that a bidder might come in to break up the company before it can do so itself.

Chemring, which produces flares, chaff and other decoy measures to protect military aircraft from missile attacks, lost 90p to £18.74 after one worker died in an accident at its Simmel Difesa factory in Italy.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/10/cxmktrep110.xml

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