Market Report: Mixed reaction to EMI after EU merger ruling

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The Independent Online

Analysts and brokers appear to be split on the probable outcome for EMI of last Thursday's news that the European Union will annul the merger between the music groups Sony and BMG. Credit Suisse maintained its "outperform" stance while Panmure Gordon reiterated its "sell" recommendation with a price target of 225p.

There seems to be no doubt that a possible tie-up between Warner Music and EMI now looks a lot further away than it did on Wednesday. The Panmure analyst Alex de Groot warned that if talks were suspended due to regulatory reasons the shares could trade sharply lower even from the current price, 18 per cent lower than where the shares traded before the EU announcement.

The market had been pricing in a bid by Warner for EMI in the region of 340p per share, and there are rumours that a large number of hedge funds have taken significant hits on the back of the surprise EU ruling. Shares in EMI staged a mild rally yesterday, nudging 0.75p firmer to close at 278.5p, having been at 269.5p early in the session.

In the blue chips, support for the broadcasting group ITV dried up on rumours that the drop in advertising revenue in the current year will be worse than expected. Talk of another private equity bid for the group has also run out of steam and the shares declined 3.5p to 96.25p as more than 37 million shares changed hands.

With the Rosneft flotation looking set to price the shares at the top end of the range, the oil giant BP was one of the few blue-chips to close in the black, adding 2p to 643p. BP has invested $1bn into the controversial flotation. Trading in Rosneft begins on Wednesday.

The FTSE 100 continued to slide and finished the week 34.8 lower at 5730.2, as Wall Street and global markets continued to sell off on higher oil prices and growing fears over conflict in the Middle East. Brent crude traded at more than $78 for the first time, as poor US retail sales numbers also hit sentiment.

The one-time star of the telecommunications sector, Colt Telecom, attracted selling pressure before Thursday's interim results. The shares recently consolidated on a three-for-one basis after the company became domiciled in Luxembourg, but traders are not convinced trading will have improved much. The shares ticked 5.25p lower to 159.5p. Elsewhere in the mid-cap tech and telecoms, Dimension continued to slide on currency issues and closed at 32.5p, 1.75p worse and a 12-month low.

Also weaker before results next week was the struggling retailer MFI Furniture, down 0.75p to 102.5p. The group announced in mid May its retail division has attracted a handful of offers from private equity groups but since then there have been no developments, and traders are taking no news as bad news. Recent talk has been that Apax Partners and Merchant Private Equity are the only bidders still in the frame, and if there is no positive update next week the shares may fall further.

With two days to go before the "put up or shut up" deadline imposed by the FSA, the US suitor Manitowoc surprised few market watchers by offering improved takeover terms to the oven and refrigerator maker Enodis. As expected, the new bid is pitched at 220p per Enodis share, valuing the company at a little more than £1bn including debt. Manitowoc recently improved its guidance for current year expectations and traders expected it to bid again. Enodis topped the FTSE 250 leaderboard, 16.5p better at 215.25p.

In the small caps, traders backed Equator Exploration heavily as word spread that it is set to make a bullish announcement in the next few days. The company, which is exploring assets in west Africa, recently said the OML122 field may contain up to 45 million barrels of oil and 730 billion cubic feet of gas. Market makers said investors were betting that the find could be significantly larger than that, sending the shares 19.5p better to 150p.

A bullish note from the house broker Collins Stewart on property services group Erinacious did little to prevent further selling, as rumours continue to do the rounds about difficult current trading. Collins Stewart dismissed the rumours and said: "We are of the opinion that the shares are now completely mis-priced ... We would anticipate the shares to undergo a sharp re-rating." Despite the upbeat forecast from the broker, the shares fell 10.5p to close at 258.5p.

Sticking with the smaller energy stocks, the word is that Regal Petroleum's bid talks will not lead to an offer being made for the group. The shares have already given back almost all of the surge to 80p made when bid talks were confirmed on 4 July, a move swiftly followed by the resignation of the chairman and the chief executive. The shares closed a penny lower at 67p.