Market Report: Boots leaps as rival's appeal over merger fails

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The merger of Boots and Alliance UniChem was originally billed a "nil-premium" deal, but shareholders who have hung on to shares in the pharmaceutical retailers have been well rewarded since the deal was struck in the autumn.

An appeal by the German rival Celesio, the owner of Lloyds Pharmacies, against allowing the merger to go ahead was rejected last night, in effect giving the deal the green light. Traders reacted positively to the news, pushing shares in both companies significantly higher, with Boots closing 27.5p better at 731.5p and Alliance surging 48.5p to close at 930p.

The heavyweight US broker JP Morgan was the first to issue new guidance in light of the Office of Fair Trading's findings, saying the clearance of the merger could lead to a re-rating of shares in Boots. The OFT has set a deadline of Wednesday next week for any further comment but analysts and traders now expect the merger to go through unchallenged.

Corporate activity chat is never far away from Prudential these days, and yesterday was no exception as traders once again said the French insurer AXA was considering a bid. Prudential has already turned down an approach from the UK rival Aviva, valuing the shares at 708p each. The feeling among traders yesterday was that if AXA is to launch a successful bid it will need to be closer to 800p per share. Prudential added 8p to 660p while Aviva continued its recent poor run by losing 2.5p at 802p.

Dresdner Kleinwort Wasserstein's "sell" note on the copper mining group Kazakhmys, published on Tuesday, appears to have been mistimed. Speculative commodity investors drove the price of copper to more than $8,000 per tonne yesterday, sending one of the main index's more exotic companies 50p higher at the close to 1,320p. However, several brokers pointed out shares in Kazakhmys have outperformed their peers significantly in recent months. Elsewhere in commodity stocks, Antofagasta was unable to follow Kazakhmys, closing 14p lower at 2,525p, while Xstrata closed 10p firmer at 2,398p.

London shares were trapped in a narrow trading range throughout the session as the Dow failed to continue its recent strong run, sending the FTSE 100 22.2 lower to 6083.4 by the close. New York shares are close to an all-time high, 0.7 per cent off the 11,722.98 of 19 January 2000, leading some traders to think the current rally, dating to March 2003, may run out of steam sooner rather than later.

One mid-cap stock getting a long-awaited boost was Northern Foods, which has warned on profits twice this year. Most traders put the gains down to covering short positions, but corporate activity chat is never far away and some traders said private-equity firms might be interested. The shares added 3.5p to 7.75p.

The Russian oil exploration group Imperial Energy had a good day, updating the market on its production targets in the Tomsk region and raising £109m through a placing at 1,030p. Traders reported strong demand for the placing and the broker Panmure Gordon followed the announcement up with a very bullish note on the company. Noting that Imperial intends to increase production to 25,000 barrels of oil per day by the end of 2008, Panmure increased its price target on the shares to 1,500p, a 37.6 per cent rise on yesterday's closing price of 1,090p.

In the small-caps, Watford Leisure fell victim to a minor bout of profit-taking, down 1p to 32.5p after its Championship play-off victory over Crystal Palace. The stock has risen almost 50 per cent since the first-leg victory, but the final against Leeds United on 21 May will have shareholders every bit as nervous as Watford's players and fans.

A busy day in small oils stocks included speculative support for Desire Petroleum, 4.75p better at 40p, on bulletin board speculation the group is poised to sign a deal with a major European oil player. However, some market makers remained sceptical. One said: "Why Shell would even consider a deal with a company that doesn't even have a rig out there is beyond me." There was real news elsewhere in the exploration and production sector as Mediterranean Oil & Gas moved further ahead as rumours of a further six prospects in Malta were confirmed. The shares have doubled since the middle of March and closed 19p firmer at 237.5p.

Look out for good drilling results from Metals Exploration today. The stock has been in demand in the past couple of weeks, rising from a little less than 30p a week ago and adding 0.25p yesterday to 41.5p. Sources close to the company say it will announce 1.7 million ounces of gold and 30 million pounds of molybdenum at its Runruno prospect, with the possibility of substantial further upgrades. The news could give the shares a significant boost.