Market Report: Buffett and Halleys linked to M&S stakebuilding
Thursday 07 August 2008
Speculators focused on Marks & Spencer, the high street retailer which touched an intra-day high of 294.5p, up more than 5 per cent, or 14.5p.
Early rumours suggested that France's Halley family – long associated with the hypermarket giant Carrefour – had acquired around 5 per cent of the UK chain overnight, with speculation that they were after another 10 per cent of the company. A second rumour held that Warren Buffett's Berkshire Hathaway was buying M&S in the market before a 400p-per-share bid.
While the speculation remained unconfirmed, trad-ers said the rumours had propped up the stock as investors moved to ensure that "they aren't caught short". Michael Page (which confirmed an approach by Adecco on Tuesday) had highlighted the possibility of activity in other underperforming shares, traders said. "There is a feeling that some of these rumours may actually materialise as people take advantage of depressed values," said one trader.
By the close, Marks & Spencer had eased back to 284p, up 4p.
Overall, the FTSE 100 was up 31.6 points at 5,486.1 after bid activity in the mining sector. The FTSE 250 was also firm, gaining 55.8 points to 9,131.5.
On the FTSE 100, Xstrata unveiled a £5bn offer for Lonmin, the platinum producer, which gained 47.7 per cent, or 1,107p, to 3,426p yesterday. Lonmin soon rebuffed the approach, calling the 3,300p proposal "oppor-tunistic and entirely unwelcome". By end of play Xstrata, down 33p at 3,167p, had bought more than 10 per cent of its target in the market and analysts said that, despite Lonmin's stance, a takeover was likely. "Lonmin shareholders are rightly fed up with incumbent management and we feel they will definitely not back a go it along strategy and will not want to lose this offer," said Michael Rawlinson, the widely followed mining analyst at Liberum Capital.
Elsewhere, Seymour Pierce said the strength inspired by the Xstrata offer presented a selling opportunity. "Given our long-term negative stance towards Lonmin, which has been fuelled by our concerns at its operation performance, we advise investors to sell into the strength created by this offer," the broker said.
The news excited the wider mining sector. Eurasian Natural Resources Corporation, which issued a positive production update yesterday, claimed third place on the leaderboard, up 7.05 per cent at 1,017p. Antofagasta was up 22.5p at 542.5p and Vedanta Resources climbed 54p to 1,828p. Aquarius Platinum rose 17.3 per cent to 451.5p.
Johnson Matthey, the speciality chemicals company which was up 107p at 1,616p, also gained on the Lonmin news as better sentiment in the platinum market pushed up the price of the metal.
ITV, down 2.7p at 43.6p, sullied sentiment around media stocks after reporting its interim results, revealing a first-half loss, slashing its dividend and sparking fresh fears about the advertising market.
"Investors will clearly be concerned about the negative earnings momentum, the lack of visibility, the speed of deterioration, the halving of dividend yield and the likely credit rating downgrade," said Credit Suisse. The broker none-theless maintained its "neutral" rating on the stock, citing the likely takeover speculation when Sky is forced to dispose of its 17.9 per cent stake by the Competition Appeals Tribunal and "the (optimistic) hope that the cycle and earnings are bottoming out".
On the FTSE 250, Trinity Mirror, down 12.25p at 122p, was hit by the news in ITV. Johnston Press, up 6p at 60p, bucked the trend after vague bid rumours and a positive broker report. Analysts at Kaupthing advised investors to buy the stock before its interim results, due later this month.
Debenhams continued to rise, up 15.58 per cent at 57.5p. Traders said Tuesday's Baugur bid rumours were again doing the rounds, causing more short sellers to abandon their downside bets.
Michael Page also supplemented earlier gains and rose 6p to 358p after UBS increased its target price for the stock from 230p to 365p to reflect Adecco's bid approach. "We believe a next move would be an opening offer by Adecco – perhaps around the 350p-375p range suggested in the press – and would expect Page to strongly reject."
The broker added that Adecco would probably continue to put pressure on its target, and may steadily up its offer to around 450p to win shareholder support.
At the other end of the mid-cap index, DSG International, down 2.5p at 50.5p, was hit by a note from UBS. The broker removed its "buy" rating on the stock, moving its target price to 50p from 55p.
Among smaller companies, Collins Stewart gained 31.15 per cent, or 23.75p, to 100p after confirming a preliminary bid approach. Market rumours suggested that a foreign buyer may be behind the approach.
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