Market Report: Buffett takeover talk sweetens Cadbury

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Cadbury was strong yesterday after market rumours mooted the possibility of a takeover bid for the world's biggest confectionary company.

Traders cited talk of a potential approach by American food and drink giant Kraft, or from Warren Buffett, the billionaire investor who backed Mars in its takeover of Wrigley earlier this year. Some market sources attributed the rumours to Mr. Buffett's ongoing visit to Europe. "[The rumour] has been around before – ever since the demerger [of Cadbury Schweppes into Cadbury and the Dr Pepper Snapple Group] there has been takeover speculation," said one trader, adding: "Warren Buffett's visit was probably the trigger behind today's rumours. I'm not sure there is much more to it."

Cadbury closed up 16.5p at 698p.

Overall the FTSE 100 was down 16.5, or 0.3 per cent, at 6,181.6. Persistent strength in the price of oil focused investor minds on the spectre of inflation and offset the effect of an early rally on Wall Street. The FTSE 250 rose 21.1, or 0.2 per cent, to 10,186.9.

On the FTSE 100, the mining sector remained on the rally path as Sanford C Bernstein revised its target price for leading stocks. The broker raised BHP Billiton's target to 2500p from 200p, aiding the stock on its way to 2110p, up 44p, yesterday. Rio Tinto, whose target was raised to 8000p from 6800p, was up 28p at 6669p.

Anglo American, whose target was raised to 3900p from 3500p at Bernstein, got an extra boost from Goldman Sachs, who set a new target of 4,505p, up from 4,100p, for the stock.

"Anglo American's long reserve life in base metals and coal and its large-scale iron ore deposit in Brazil provide it with a portfolio of strategic assets which should allow it to benefit from urbanisation trends in the BRICs economies [first, from demand for infrastructure, and second, from domestic consumption demand from an emerging urban middle class]," Goldman said. Anglo American closed up 28p at 3543p.

Xstrata, whose target was raised to 4300p from 3500p at Bernstein, also had additional support; chief executive Mick Davis picked up 167,480 shares in the company at 4151p each yesterday. Xstrata closed up 87p at 4224p.

Vedanta Resources, however, missed out on the rally and lost 64p to 2648p after Goldman downgraded the stock to "neutral" from "buy" on valuation grounds.

The banking sector was mixed as investors and analysts took stock of allegations of cover-ups of ratings errors at Moodys. Panmure Gordon pointed out that the news is likely to affect banks, many of whom have "perched their arguments about write-downs on the thin ledge of the credibility of the AAA ratings on many of their structures credit exposures". "This could now crumble away if the Moodys allegations are proved correct," the broker said, noting a negative read-across from the news on Barclays – which has £2.5trn in notional amounts of credit derivatives and exposures in structured credits – and the Royal Bank of Scotland, which has £2.4trn in notional amounts of credit derivatives. "There is also a broader read-across to all the UK banks to some extent," Panmure added.

Barclays was down 6p at 392p, HBOS was down 4p at 441.5p and Lloyds TSB lost 3.5p to 391.25p. FTSE 250-listed Bradford & Bingley was down 2.75p at 101.5p. RBS survived the negative comment, however, and rose by 3.25p to 244.75p. Alliance & Leicester was also up, gaining 3.25p to 418.5p.

Oil companies were down as investors took profits from recent gains. Cairn Energy lost 3.88 per cent or 143p to 3538p, BG was down 47p at 1347p and Royal Dutch Shell lost 46p to 2196p.

Imperial Tobacco, which recently launched a deeply discounted £4.9bn rights issue to pay for its acquisition of Spanish cigar-maker Altadis, was down 92p at 2095p after UBS reiterated its "sell" stance on the stock.

On the FTSE 250, UK Coal was up 22.5p at 585.5p after market speculation suggested some interest from Drax, the owner and operator of Drax power station. Traders noted rumours suggesting Drax may be building a stake or mulling a bid for the company.

By close, Drax was down 17p at 707p.

Speciality insurer and re-insurer Catlin was up 12.25p at 401.75p after Goldman Sachs upgraded the stock to "buy" from "neutral". "Catlin shares have fallen by 14 per cent since March 28 and underperformed the sector by about 15 per cent," the broker said, adding: "We believe some mean reversion is likely because of the low earnings multiple and strong book value support."

On AIM, Knowledge Technology advanced by 33.33 per cent or 0.225p after agreeing to sell its Market Terminal subscription service information base to Ionic Information.

The company said it would receive a minimum of £50,000 from the sale.