Financial Times: BG buoyed by talk of interest from Shell and Petrobras

By Neil Hume and Robert Orr
Published: October 12 2007 03:00 | Last updated: October 12 2007 03:00

BG Group was one of the biggest risers as the FTSE 100 came within eight points of closing at a seven-year high.

Shares in the oil and gas exploration group rose 4.7 per cent to a record high of 883p as takeover rumours swirled.

A Brazilian newspaper reported this week that Petrobras, Brazil’s state oil company, and Royal Dutch Shell , up 2.5 per cent to £20.25, were in talks to join forces to buy BG.

The report said Petrobras was interested in BG’s Brazilian gas assets and Shell the rest of the company. The talks ended without success.

Nonetheless, traders said they would not be surprised to see deals in the oil sector. On Tuesday, Burren Energy , up 0.3 per cent to £11.64, rejected a number of unsolicited approaches at prices of up to £11 a share, including one from Italy’s Eni.

All told it was a good day for oil stocks as the US crude price jumped $2 a barrel after inventory data showed supplies falling sharply last week.

In the wider market, the FTSE 100 rose 91.5 points, or 1.4 per cent, to close at 6,724.5, just eight points shy of the seven-year high reached on June 15 and 206 points away from its record closing high of 6,930.2 recorded at the height of the dotcom bubble.

Elsewhere, the FTSE 250 was up 110.8 points, or 1 per cent, to 11,622.9. Trading was heavy, with almost 4bn shares changing hands.

Mining stocks spearheaded the advance. Rising metal prices helped Antofagasta rise 4.2 per cent to a record high of 871½p, Xstrata add 4 per cent to £35.92 and Vedanta Resources move up 5.8 per cent to a record £23.17.

However, that was not the only factor behind the gains. Traders said investors continued to buy into mining stocks because of their exposure to emerging markets. There was also some bid speculation in the air, with BHP Billiton , up 4.4 per cent to £18.80, said to be looking at Rio Tinto , 3.5 per cent higher at £45.63.

Vodafone was another strong performer, rising 5 per cent to 179½p. Traders pinned the rise on positive comments made by Telefónica at its annual investor day in London. The Spanish company, which owns O 2 , said it expected earnings per share to reach €2.30 by 2010 up from €1.30 last year. Telefónica shares rose 7 per cent.

Schroders , the fund management group, enjoyed gains even though Martin Dobson, chief executive, said he was not looking to sell or divest any businesses.

However, the shares rose another 4 per cent to £15.60. With trading volumes again above average, dealers said it was possible that an activist investor was building a stake in Schroders.

BAE Systems , the defence company, firmed 1.9 per cent to an eight-year high of 506½p after Cazenove pushed the stock to clients before next week’s analyst trip. The broker said BAE would use the investor day to highlight its strong position in Mine Resistant Ambush Protected Vehicles.

But housebuilders were on offer after a Royal Institution of Chartered Surveyors survey showed house prices had fallen at their fastest pace in two years in September. Persimmon shed 4 per cent to £10.03, while Taylor Woodrow lost 4.3 per cent to 290¾p and Barratt Developments fell 3.5 per cent to 722p.

GlaxoSmithKline was marked 1.6 per cent lower at £12.90 after Cazenove warned clients that third-quarter results, due on October 24, could disappoint.

The broker said earnings per share forecasts for 2008 were 4 per cent too high.

Rumours of further consolidation in the oil field services sector helped Hunting rise 10.3 per cent to 783p and claim the top spot on the FTSE 250 leaderboard. Abbot Group , off 0.6 per cent to 353½p, said last week that it had received a takeover approach, believed to be from 3i, the private equity group.

Sector watchers believe Hunting received several approaches earlier this year but rebuffed them.

“We have no doubt that the company could be broken up into Hunting Energy Services and Gibson [serving the Canadian oil sands market]. We suspect that unless the company moves this way then a third party may do it for them,” Evolution Securities said.

Petrofac , another oil field services company, rose 5.1 per cent to 504p.

Copyright The Financial Times Limited 2007

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