Market Report: Cairn Energy hit as deal uncertainty re-emerges

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The Independent Online

The latest developments in the attempted sale of its controlling stake in Cairn India left Cairn Energy stuck near the foot of the blue-chip index yesterday. The oil and gas explorer agreed to sell up to 51 per cent of the unit back in August to Vedanta Resources as part of a deal worth as much as $9.6bn (£6bn), but the move has still not received clearance from the Indian government.

Things looked promising over the weekend when the country's oil minister, S Jaipal Reddy, said he was hopeful of a "positive solution", but he was more cautious yesterday, saying that objections raised by the state-run Oil and Natural Gas Corporation (ONGC) over the sale must be tackled if it is to go through.

"The government would support the deal in principle, but some of the concerns of ONGC need to be addressed legitimately and substantially before clearing the deal," Mr Reddy said after his latest meeting with Cairn Energy.

ONGC, which owns a stake in a number of the assets involved and has said that the agreement requires its approval, is unhappy over a royalty payments issue.

Bill Gammell, Cairn Energy's chief executive, described the latest meeting as "positive and constructive" and said he would not ask shareholders to push back the deadline for the deal from 15 April. Yet the group still slid 10.4p to 425p, while Vedanta was knocked back 18p to 2,414p.

Traders also pointed out the recent announcement by ONGC that it will not make a counter-bid for the stake means there is likely to be no alternative bidder if the Vedanta deal collapses.

Overall, the FTSE 100 advanced 40.3p to 6,091.33p, a new high for 2011 and its best closing level since May 2008. The jump came despite the unexpected announcement from China that it is raising interest rates for the third time since October.

The decision failed to hit the miners dramatically, with Eurasian and Kazakhmys easing back 15p to 1,029p and 9p to 1,622p respectively. Xstrata, meanwhile, jumped up 25p to 1,492.5 after revealing profits for the year that beat expectations.

Also ahead was Rio Tinto, 87p stronger at 4,712p, following a prediction from its chief executive, Harry Kenyon, at a conference in South Africa that demand for copper, aluminium and iron ore will double within 20 years.

Market experts were tripping over themselves to praise the move by Marks & Spencer to poach Laura Wade-Gery from Tesco, who will take charge of the company's online sales.

Shore Capital's analysts called it "a potentially tremendous appointment", pointing out that "Marks & Spencer is far from a stellar player in the dot.com field... where we see tremendous opportunity." Meanwhile, Arden said it was "a real coup", as the high-street retailer shot up 13.5p to 373.3p.

Investors lifted Inmarsat up 25p to 713p as Harbinger Capital Partners sold its 14 per cent stake in the mobile satellite company. The news prompted Bank of America Merrill Lynch to increase its advice on the group to "buy" from "neutral", saying the sale "removes the share overhang and helps clean up what has become an excessively complicated situation".

The £800m increase of the bank levy tax by the Chancellor, George Osborne, had little effect on the sector, with Lloyds Banking Group managing to rise 1.38p to 65.95p, although Standard Chartered retreated 15p to 1,679p.

Disappointing announcements were behind the bottom two fallers on the second line, with Premier Oil – 146p lower at 1,994p – taking the wooden spoon. The British energy company announced that it was abandoning a North Sea well in the Catcher field, which also led the licence operator Encore Oil to slide 23.5p to 128p on the Alternative Investment Market.

Just behind was McBride, retreating 8.6p to 139.6p, as the cleaning products group blamed the rising cost of commodities for a fall in its operating profits.

At the opposite end, Beazley surged 7.9p to 127.7p following its preliminary results. The Lloyd's of London insurer saw a massive rise in profits of 60 per cent, and revealed it was on the hunt for acquisitions.

Thomas Cook moved up 4.3p to 197.8p, with the tour operator estimating in an update that the recent turmoil in Egypt and Tunisia will cost it £20m.

The announcement from small-cap group Hyder Consulting – up 29p to 423p – that its trading is in line with forecasts was picked up by analysts as good news for its larger peer, WS Atkins, which put on 7.5p to close at 683p. "The trading update... should get the market back on to the positive Atkins investment story," said Andy Brown of Panmure Gordon.

Wolfson Microelectronics was left 12p worse off at 272p despite its revenue for the fourth quarter rising by more than two-thirds, as weak gross margins proved discouraging.

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