Market Report: Drug makers draw takeover rumours

  • @LauraHChesters

On an otherwise dull day in the City, traders were getting high on takeover talk about drug makers. Dealers have speculated for weeks that AstraZeneca's new boss, Pascal Soriot, is looking at companies to replenish his medicine cabinet.

He was said to be eyeing Irish bio pharmaceutical group Amarin. But yesterday reports emerged that AstraZeneca is not its only current suitor. Jerusalem gossips think Israeli generic drug giant Teva Pharmaceutical is lining up a bid for Amarin. This could mean a bidding war with some dealers speculating that AstraZeneca would need to offer more than $20 a share.

Astrazeneca's shares declined 13.5p to 2,842.5p while Amarin lifted more than 3 per cent to $11.04 during afternoon trade in the US.

The rumours in the world of pharmaceuticals also spread to GlaxoSmithKline. Traders pumped round vague whispers that GSK could be looking at US group Illumina. Switzerland's Roche walked away from a bid for the San Diego-based Illumina in April, but traders hope (and are speculating) that Roche could look again and GSK is taking an interest.

GSK shares edged down 0.5p 1,325.5p.

The FTSE 100's shift downwards continued as investors retained their risk-averse viewpoint. Concerns on the progress of the eurozone crisis and the fact that it officially entered a double-dip recession weighed heavily. The Footsie lost 44.26 points to 5,677.75, the first time it closed below 5,700 since 6 September.

Clive Cowdery has put his rapid deal-doing on hold for now, but the costs of integrating the businesses his insurance group, Resolution, has already gobbled up have been more than anyone first thought. Punters don't like being told about extra costs, and with the company revealing around £80m, its shares lost 9.5p to 230p.

Apparently the costs have risen due to the "complexity arising from the migration from Axa IT systems", while Resolution's outsourcing deal is also more expensive than planned.

But its third-quarter results also contained some better news. The target for the cost reduction has risen to £160m by end-2015.

Cowdery set up Resolution in 2008 to buy, merge and sell underperforming life insurers. It has spent £4.7bn buying insurers including Axa's UK life business, but a falling share price ended the deal spree and now it looks like even the mergers that have been completed are pricier than predicted. But analysts at Bank of America/Merrill Lynch reckon Resolution's dividend is the best bit and said: "As we stated in our recent upgrade note, yield is the primary reason to own the shares. Dividend cover will be further enhanced if the international businesses start to increase ongoing dividends back to group."

Bank of America's scribes retained their buy recommendation and their 264p share price target.

One of the few risers on the benchmark index was miner Xstrata, up 10.3p to 958p, after its proposed £56bn merger with commodities giant Glencore was sealed.

On the mid-cap index, the traders not tired of gossiping about potential takeovers suggested construction group Balfour Beatty could look vulnerable after it issued a profit warning last week. Its shares were up 8.8p to 249.9p as analysts at Numis Securities upgraded it to buy but downgraded their share price target to 297p.

Private-equity group 3i said it is on track with its cost-cutting programme. It has shut five offices and its shares edged down just 0.2p to 209.4p.

Flogging expensive homes and offices in central London is still paying off for property consultancy Savills. It said its full-year results will be ahead of expectations and its shares lifted 3.1p to 407.2p.

Brisk trade in the US for small-cap index construction business Keller Group helped it predict full-year results will be significantly above expectations. The group, which built the foundation for the Olympic Stadium, said although Superstorm Sandy hit its business, it didn't expect to see any "material" impact from the disaster. Its shares spiked during the day but ended static at 623p.

Bad news for soap and cosmetics maker Swallowfield. It said consumer caution had damaged trade and it expects the first half of the year to have significantly lower turnover than last year. Its shares ended unmoved at 101.5p.