Market Report: Bid targets rise on hopes for new round of deals
Friday 27 May 2011
Investors praying for deals to get their teeth into were given a reason to be cheerful yesterday, as analysts predicted an acceleration in takeover activity. Barclays Capital said merger-and-acquisition (M&A) volumes in Europe are currently two and a half times lower than in 2007, but the bank said it believed a recent rebound in corporate investment meant this was about to change.
A number of large companies hold stockpiles of cash earning little interest, Barclays' analysts argued, adding that "inexpensive avenues for growth abound" – and that "the premium growth offered by European small caps relative to the larger caps is at an all-time high".
Using a number of characteristics, with valuation the most important, BarCap calculated which of the European companies were likely to be targeted. Of those listed in London, Petropavlovsk came out top, helping the miner – which has lost around 45 per cent of its share price since last June – to increase 7.5p to 745p on the mid-tier index.
Also close to the list's summit was Micro Focus, a favourite of the market gossips, and the software company edged forwards 1p to 372.5p; Halfords, the highest retailer, was bumped up 6.7p to 394.4p.
It may have received a blow from the news that US GDP for the first quarter was not going to be revised upwards from 1.8 per cent, but the FTSE 100 still finished 10.85 points ahead at 5,880.99. The miners managed to maintain their march forwards, with Antofagasta advancing 42p to 1,258p after the copperproducer announced its core earnings for the first three months had grown 30 per cent.
Sentiment around the sector was given a boost by Fairfax, which said the miners had suffered from the transfer of funds into the float of Glencore, 0.7p behind at 521.5p. However, the broker said the groups "are now set to make good gains as indexmoney replaces speculative capital in Glencore and as short positions used to help fund the initial public offering are unwound".
Lloyds Banking Group was helped forwards 0.58p to 51.32p after Richard Branson said his Virgin Money business was planning on making a bid for 600 of the bank's branches. Lloyds needs to dispose of the assets to meet regulatory demands, though it has been warned it may be forced to sell even more.
The gold-medal position on the blue-chip index was claimed by Weir Group, which was driven up 100p to 1,984p following Royal Bank of Scotland's decision to change the engineer's target price to 2,125p from 1,935p. The bank's analyst Andrew Douglas made the move after Weir's update earlier in the month, increasing his profit forecast by nearly 10 per cent.
Man Group was among the companies updating the market, and the world's biggest listed hedge fund's full-year pre-tax profit of almost $600m impressed. As a result, the group was pushed up 5.9p to 245p, though Charles Stanley's Andrew Mitchell warned that "most of the surprise was one-off in [its] nature".
There was no such reaction to Burberry's preliminary results, however, as the luxury group was left with the wooden spoon. Plummeting 60p to 1,260p despite its profit rising nearly 40 per cent, investors recoiled after the retailer said its profit margins would take a hit from its £200m investment programme.
Also in the red was Shire, despite the reheating of vague bid talk. The drug maker has been knocked this week by the news that a number of its rivals are planning to produce generic versions of its Vyvanse product, and yesterday it shed a further 25p to finish at 1,850p.
The saga of the London Stock Exchange's attempted takeover of its Canadian peer TMX was still ongoing following the announcement late on Wednesday that the Maple consortium – whose approach was rejected – is taking its higher bid directly to shareholders. The LSE is seen as ripe for a takeover itself if the deal falls through, and the latest development saw it surge forwards 19p to 949p.
Elsewhere, Rank edged up 1.2p to 148.7p after the owner of Mecca Bingo reiterated its opposition to Guoco's 150p-a-share offer, claiming the Hong Kong group's approach "substantially undervalues" the company.
SuperGroup's announcement that it is moving into a new flagship store on Regent Street hardly prompted a rush of enthusiasm, as the retailer declined 19p to 1,021p – the latest blow in a run that means it trades more than 35 per cent lower than at the start of the month.
Down among the small-cap companies, Tribal stayed steady at 42.5p despite the outsourcer revealing discussions over a potential bid for it had come to an end without a formal offer being made.
Meanwhile, Sportingbet was pegged back 4.5p to 40.25p after the online gaming group agreed a £120m deal to take control of Australia's Centrebet International.
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