Market Report: Exane puts takeover spotlight back on Aegis

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The marketing group Aegis was in focus as bid hopes came back to the fore last night.

The FTSE 250-listed stock, which touched a high of 118.3p before closing broadly unchanged at 117.2p was one of two companies added to the mergers & acquisitions target list at Exane BNP Paribas; the other, Dana Petroleum, the mid-cap oil & gas group group, was firm in the morning and in early afternoon trading, but dipped into the red, slipping by 9p to 1085p, as the session came to a close. Assessing the prospects for deal activity, the broker said that while the recovery is unlikely to trigger a boom in mergers and acquisitions, "there will undoubtedly be some transactions and these will probably be concentrated in sectors such as pharmaceuticals, mining, telecoms and media".

Aegis, a favourite of the rumour-mongers, has long been seen as a likely target. "The rationale for Havas [the advertising group] has always been compelling: the two companies have in common their largest shareholder (Bolloré group with 29.9 per cent of Aegis and 32.9 per cent of Havas)," Exane said, noting that once again a variety of factors, including the fact that "the Havas balance sheet is now under-geared", made a deal appear likely in the next 12 months.

Like Aegis, Dana often features in the market rumour mill. Last November, for instance, the stock was in focus amid chatter regarding the possibility of a 1,700p approach from BP. Besides the prospect of an all out bid from a large oil company, Exane said Dana's gas assets could be of interest to utilities seeking gas reserves to reduce their dependence on Russia and Norway, adding: "The head of E.ON's Pan-European Gas division has recently confirmed that E&P [exploration & production] was increasingly a strategic matter."

Overall, weakness in energy and mining stocks, with the Eurasian Natural Resources Corporation falling to 1025p, down 40p, and Lonmin losing 61p to 1815p, pressured the FTSE 100. As a result, the benchmark fell by 36.98 points to 5315.09, while the FTSE 250 lost 53.86 points to 9387.85 as sentiment remained subdued. The Bank of England governor's testimony before a parliamentary committee sparked worries about the economy, with the pound coming under pressure amid concern that further quantitative easing may be required. The mood wasn't helped by news of a surprise fall in confidence amongst German companies and, later, of a sharp slide in a widely followed gauge of US consumer attitudes.

RSA Insurance, down 1.3p at 131.6p, was held back amid speculation suggesting that the company may be testing the waters for a possible cash call. Traders were cautious, however, pointing out that a spate of similar rumours last year ultimately came to nothing. This time, RSA was rumoured to be seeking funds for a tilt at Aviva, which nonetheless lost 4.8p to 376.2p. The wider sector was also unsettled, with Prudential, easing by 10p to 602p, and Standard Life relaxing by 3.1p to 193.8p.

On the upside, Wolseley, the construction materials company, led the way, rallying by more than 12 per cent or 181p to 1630p after posting an upbeat trading update. The testing and inspection group Intertek was also strong amid optimism ahead of its full year results in March. Renewed speculation regarding the possibility of a bid from Swiss rival SGS also boosted the stock, which rose by 5.8 per cent or 70p to 1288p.

Further afield, the support services group Rentokil Initial, up 1.5p at 131.5p, was boosted by a round of positive broker sentiment, with Morgan Stanley, Credit Suisse and UBS raising their targets for the stock to 155p, 146p and 135p respectively. "Rentokil's historical operational inefficiency is being gradually resolved by the management team and there are significant remaining opportunities to strip costs out of the divisions," Credit Suisse said, repeating its "neutral" recommendation "We forecast that it can reduce costs by a further £162m over the next three years with around £50m of these savings reinvested into the business to drive growth or offset pricing pressure."

Elsewhere, the building group Kier rose by 25p to 1000p as the bulls piled in ahead of its interim results, which are due this morning. "The most recent trading comments from the group indicated a strong start to the year but in line with expectations," Panmure Gordon said, repeating its "buy" recommendation. "So we do not expect any surprises with the [first half] results."

Also on the upside, the Royal Bank of Scotland supported Misys, the IT group which gained 4.3p to 217.2p after the broker revised its stance to "buy" from "hold". "Over the coming weeks we expect positive newsflow, which should highlight the sizeable opportunity for the [company's] BankFusion product and confirm accelerating growth across the group," RBS said, raising its target price to 255p from 234p, and pointing out that Misys is due to hold an analyst and investor day to highlight the opportunities for BankFusion at the beginning of March. "Against this backdrop, we think the valuation discount will start to narrow," the broker added.