Market Report: AZ spells more takeover excitement for gossips

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The Independent Online

It has been a busy week for the revival of takeover talk, and yesterday was no exception. Analysts and gossips alike were talking up the bid potential of various companies, with AZ Electronic Materials – whose chemicals are used by Apple in both the iPad and the iPhone – one of the stocks in the spotlight.

The specialist technology firm has been touted as a prospective target before, and yesterday Goldman Sachs decided to return to the idea. Saying that many companies in the chemicals sector are not only in possession of strong balance sheets but also have a desire to shift their portfolios downstream, the broker's scribes claimed that therefore AZ "will be viewed as a potential M&A candidate".

They also claimed that a "key overhang on the shares has been removed" in the wake of private-equity backers Carlyle Group and Vestar Capital Partners – who floated the firm back in 2010 – getting rid of their final stake earlier in the month.

As a result, AZ was added to Goldman Sachs' "conviction buy" list, trading as high as 305.3p in response, although by the bell it had moved back a bit, eventually closing 2.8p better off at 298.8p.

It was by no means the only stock getting M&A fans excited, however, as bid talk made a return around Kenmare Resources, lifting the Irish miner up 1.85p to 52.35p. After being linked with Rio Tinto (down 53p to 3,480p) earlier in the year, the latest revival of the rumours claimed another heavyweight miner BHP Billiton (down 22.5p to 1,541p) may also be interested in making a potential approach.

There was also vague speculation one of Kenmare's largest customers, chemicals giant DuPont, could be a possible bidder. However, many were treating the chatter with a lot of scepticism, having heard takeover speculation about Kenmare a number of times before.

Analysts from Berenberg were similarly downbeat on the oft-floated idea that Sage, which was knocked back 2.7p to 298.9p, could attract a suitor. Saying a takeover by Microsoft or Intuit (both of whom have featured in previous bid speculation) of the business software group would leave them with "numerous integration headaches and a culture clash", they added that while an approach from private equity was "a possibility... the valuation is currently too rich in our view for any significant take-out premium".

They also played down the takeover potential of Logica, warning that while the "most likely acquirers are the Indian IT companies... the probability is low", although this did not stop the group charging up 3.05p to 96.65p.

A late slump meant the FTSE 100 failed to gain for the sixth straight day. Early rises had many eyeing the 6,000 point level, but the index didn't hold on to its winnings, finishing 10.48 points down at 5,945.43.

The diggers were causing the main damage after comments from Chinese premier Wen Jiabao suggested an easing of the country's monetary policy was not going to happen any time soon.

In response, Kazakhmys took the wooden spoon after retreating 42.5p to 943.5p, while Vedanta Resources was driven back 39p to 1,391p.

The banks were on the rise, with Barclays and Royal Bank of Scotland climbing 9.25p to 248.8p and 0.8p to 26.56p respectively following the news late on Tuesday that many of their US peers had passed the Federal Reserve's stress tests.

In fact, the financial sector was dominating the Footsie's leaderboard, and Legal & General took the top spot by advancing 9p to 134.3p after announcing it was raising its dividend by more than a third.

Elsewhere, Vodafone retreated 4.1p to 166.65p following the news that the EU is looking into meetings between a number of Europe's largest telecoms groups.

The mobile phone giant was also knocked by Bernstein Research slashing its earnings forecasts, while Exane BNP Paribas reduced its rating on the company to "underperform".

Down on the FTSE 250, Home Retail was in fine form ahead of its trading update today. The Argos-owner received some rare support from analysts as JP Morgan Cazenove decided to raise its rating by two notches to "overweight", prompting a rise of 5p to 115p.

The scribblers were keen on the retailers as a whole, saying a "possible turning point [has been] reached", with Marks & Spencer and B&Q-owner Kingfisher – which pushed up 8.7p to 370.8p and 1p to 295p on the blue-chip index – coming in for particular praise.

Back on the mid-tier index, electronic parts distributor Premier Farnell reached a new, eight-month high, shifting up 13.4p to 228.8p in preparation for the release of its fourth-quarter results today.

UK Coal fell 27.97 per cent to 21.25p on the small-cap index after warning a restructuring plan could see its Daw Mill mine close and dilute investors' holdings.