Market Report: Merger rumours put some gas into Centrica

Cadbury Schweppes; Davis Services; Sports Network
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The Independent Online

Centrica was a major talking point of yesterday's session as investors took the view that corporate action is on the agenda at the utility. The excitement surrounding the stock was prompted by reports that Sir Roy Gardner, Centrica's chief executive, had held merger talks with Norway's Norsk Hydro.

Centrica was a major talking point of yesterday's session as investors took the view that corporate action is on the agenda at the utility. The excitement surrounding the stock was prompted by reports that Sir Roy Gardner, Centrica's chief executive, had held merger talks with Norway's Norsk Hydro.

Many now expect the group to be involved in some type of deal before the end of the year and this prompted strong demand for the stock early during the day. At their high Centrica shares traded at 239.75p, but as the session wore on investors' appetite waned and they closed at 235p, up just 1.5p on the day. This was partly caused by the worry that Centrica's eagerness to combine with a company like Norsk Hydro highlights the fact that it is struggling to find a way to increase its gas assets.

Centrica has put aside some £5bn for investments in oil and gas sites over the next few years but if it can do a deal with a company that has an abundance of such assets it could return this cash to shareholders. The discussions with Norsk Hydro, which is 44 per cent owned by the Norwegian government, are said to have failed because of political concerns about the tie-up ahead of parliamentary elections in the Scandinavian country due in September.

But that does not mean that talks cannot be restarted after the poll. Centrica certainly seems to be keen on doing a deal. Earlier this year its chief executive talked of a possible tie-up with BG Group from which Centrica was originally demerged back in 1997.

The wider FTSE 100 index finished in negative territory, down 10 points at 4,973, as the blue chip index was weighed down by falling prices in the oil sector. BG lost 3.5p to 428.5p, Shell fell 2.5p to 489p and BP gave up 4.5p to 560p after a slide in the value of crude. Boots rose a further 14.5p to 649p as hopes of a private equity bid continued to drive.

Cadbury Schweppes

Talk that the confectioner Cadbury Schweppes is considering the sale of its European drinks business.

lifted the shares 1p to 540.5p. The business includes brands such as Oasis and Orangina in which a number of private equity groups are said to be interested. Such a move would help Cadbury pay down its debt pile which at the last count stood at over £4.5bn.

Tesco improved 1.75 to 318.75p before its full year results today which will see the supermarket group boast of over £2bn in profits and possibly herald an aggressive expansion drive into Eastern Europe. ITV added 1.75p to 128.25p as brokers highlighted the fact that the strike action by 700 staff at the broadcaster seems to have had little impact on output so far. Around 700 production staff at ITV are believed to have walked out on Friday in a protest over pay.

Citigroup played down recent talk that Rentokil Initial, up 0.5p to 170.5p, is vulnerable to takeover by a private equity firm. The US broker believes such a transaction would simply be too big for most buyout firms while Rentokil's sizeable pension fund deficit and weakening margins make it unappetising proposition.

Davis Services

Citigroup believes Davis Services, up 7.5p to 451, is a much more likely target for private equity. It calculates that take-out price of 554p is a possibility.

Meanwhile, Davis Services was forced to assure the City that fall-out from the crisis at MG Rover would have an insignificant impact on the company. The group, which provides workwear to a large number of the stricken car-maker's workforce, said the impact of Rover's collapse on its earnings would be tiny.

Aggreko dropped 9p to 193p amid profit taking after Friday's surge on rumours of a possible bid for the temporary power specialist. Panmure Gordon also weighed on the company's share price. The broker poured cold water on bid rumours surrounding Aggreko and suggested that its shares, at present, are overvalued.

Sports Network

The AIM listed boxing promotion business run by Frank Warren, Sports Network, rose 0.75p to 5.25p on the back of a return to the black. The group posted a pre-tax profit of £500,000 compared with a loss of £100,000 a year earlier. Clarity Commerce jumped 5.5p to 72p on news of a substantial contract win for the software group and the appointment of John O'Connell, the founder and chief executive of sector giant Staffware, as chairman. Finally Inventive Leisure, steady at 87p, saw some sizeable director share purchases. Roy Ellis, chief executive of the bars group, and Neil Macleod, a fellow executive director at the company, each bought 83,000 shares at 87p.

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