Market Report: Takeover chatter sparks interest in ICI and 3i

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Long-term shareholders of ICI can be forgiven for wondering what all of this bull market talk is about. The industrial chemicals group, once a shining light of British industry, has endured a torrid few years since hitting 1,050p in May 1998. Since then there has been little to smile about, as the boom passed them by and the stock slid to less than 100p by early 2003.

ICI was well bid yesterday as rumours swept the market that the US chemicals giant DuPont was poised to launch an offer for the company, sending its shares soaring to 373p in early trade, a rise of 27.25p. After some last-minute profit-taking, ICIshares closed at 362.5p, up 16.75p.

DuPont, with a $39bn (£22bn) market capitalisation it is big enough to swallow ICI, which is worth £5.5bn including debt, but some analysts believe DuPont is not in an acquisition phase and may be scared off by ICI's bulging pension deficit. There was also talk of private-equity interest in ICI, with rumours of Goldman Sachs advising a number of large buyout firms on ICI, including The Blackstone Group and The Carlyle Group.

The story has done the rounds before but traders once again spent much of yesterday's session speculating about a move for 3i, Europe's largest-quoted private-equity investor, by its US rival Kohlberg Kravis Roberts.

Despite some traders expressing doubts that such a bid could work, shares in 3i reacted strongly to the talk, with some saying an 1,175p-a-share offer could come as early as this morning. Shares in 3i added 15.5p to close at 961.5p.

The property sector was the main beneficiary of yesterday's Budget as analysts reacted positively to developments in the long-running saga of converting property companies into Real Estate Investment Trust (Reit) status.

In a note to clients the US broker JP Morgan said the proposals outlined in the Budget give almost all property companies the opportunity to switch to REIT status. Required payout ratios have been dropped to 90 per cent from 95 per cent, interest cover dropped from 2.5 per cent to 1.5 per cent, and a more favourable taxation regime all boosted the sector as prices soared. Land Securities added 237p to close at 2,080p, with British Land close behind after an 138p rise to 1,300p and Slough Estates, celebrating a 50 per cent rise in 2005 pre-tax profits, 81p better at 685p.

Hammerson, Liberty International and Brixton were also strong, as analysts also said the cost of becoming a Reit will be substantially lower than expected. Hammerson gained 110p to 1,300p, Liberty closed 85p better at 1,225p and Brixton climbed 54p to 541p.

The sparkling performance of the property sector drove the wider market higher, as the FTSE 100 added 16.2 to close at 6,007.5, the first time the index has managed to hold on to a level above 6000 for five years. Most traders remain bullish on the market's prospects and are unconcerned about the index's failure to hold on to the to 6,000 level in recent sessions.

There was strength all around the market yesterday, with BP 3p better at 657p, AstraZeneca up 35p at 2,920p and Rio Tinto 31p better at 2,742p.

The commercial broadcaster ITV confirmed it received an approach from Apax and Goldman Sachs, three weeks after this column revealed that the Apax television adviser, Greg Dyke, was poised to make a dramatic return to ITV. Its shares added 11p to close at 128p as the broadcaster confirmed it had rejected the approach. Some traders are convinced Apax will return with a full bid for the company.

Completing the rumour mill was Lloyds TSB, with Wells Fargo the latest name to be touted by traders as a possible predator. Its shares were13.5p better at 573.5p.

Among smaller companies, traders will be watching the minnow Zareba as it returns from suspension today. The company's shares were suspended from trading on 12 December last year at 1.8p, and yesterday completed a reverse takeover by Quadrise International, a company that owns a licence for technology developed by Azko Nobel which allows emulsion fuels to be developed at low cost from crude oil. Some traders expect the stock to soar once the suspension is lifted.

European Nickel was 2.75p better at 31.75p as the mining giant BHP Billiton increased its stake in the company by 4.4 per cent to 12.2 per cent. The brokers Numis Securities and Canaccord Adams also lent their support to European Nickel, urging their clients to buy the stock.Gladstone Pacific Nickel benefited from European's rise and added 10p to close at 142.5p.

Finally, Eleco was 2.75p worse at 52p despite rumours the company is poised to report 2005 numbers today above expectations.