Market Report: Heritage Oil rises after takeover talk returns

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Market gossips returned to an old tale last night, as vague speculation that Heritage Oil could be about to receive an approach helped it spurt up the leaderboard of the mid-tier index. Not for the first time, the reheated chatter turned towards China for possible aggressors, picking out the state-owned Cnooc once again as a prospective bidder.

Heritage has endured a torrid 2011, losing roughly half of its share price since the start of the year. It was therefore not much of a surprise that, whereas reports in March suggested Heritage had rejected an informal offer worth 425p a share, 350p a pop was the figure being discussed yesterday, although traders played down the talk.

The group – which announced after the market closed on Monday it was starting arbitration proceedings against the Ugandan government over a tax dispute – was lifted 6.4p to 234.2p, taking it off its lowest price for more than two years. Heritage was also given a helping hand by JP Morgan Cazenove, which kept its "overweight" rating and price target of 380p.

Overall, disappointing industrial output and housing figures from the US knocked the FTSE 100 back 62.69 points to 5,861, with the latest numbers from the Office for National Statistics showing a sharp increase in UK inflation not helping.

Stuck in last position was IMI, sliding 64p to 1,008p as investors reacted with disappointment to the fact it had not been added to the MSCI Europe index. Hopes that the engineering group could make the index in the latest review, which would have prompted a flurry of interest from tracker funds, have assisted its rise of more than 7 per cent over the past two months.

One stock that did manage to make the grade, however, was Wood Group, and the oil services provider saw a rise of 2p to 646p. Meanwhile, Cable & Wireless Worldwide, Thomas Cook and FirstGroup were all chucked out, and they slipped down 0.85p to 50.75p, 2.7p to 155.3p and 1.7p to 354.4p respectively.

Back among the blue-chip groups, Arm Holdings was also in the red, shifting back 26.5p to 555.5p as the chipmaker – which was holding an investors' day – suffered along with other technology companies as the US giant Hewlett Packard reduced its sales estimate for the year.

At the other end, Vodafone was driven up 1.45p to 169.7p after the telecoms group met expectations with its final results. The biggest boost, however, came from its positive stance on next year, coming as it did in the wake of a number of downbeat comments from its global peers in recent weeks.

Aviva climbed 1.6p to 435.6p, despite the insurer's life sales falling nearly 15 per cent after the group decided to focus on more profitable markets. Meanwhile, on the mid-tier index, Babcock International saw its annual profit rise nearly 60 per cent, helped by the defence services company's purchase last year of its rival VT Group.

A flurry of companies on the FTSE 250 were having their bid chances talked up, including De La Rue, which added 11.5p to finish at 835p. Takeover discussions with the banknote printer and Oberthur fell apart last January despite the French technology group suggesting it could make a 935p-a-share offer.

However, UBS's Alex Hugh said that if – as has been suggested in recent reports – Oberthur sells a 60 per cent stake in its smartcard unit, its financial situation would be improved enough to make "another bid for De La Rue... quite possible". As a result, the analyst changed its rating to "neutral" from "sell", although he did point out that Oberthur is not able to try again until the end of July.

Takeover talk also helped Go-Ahead, up 3p to 1,493p, as Peel Hunt said the fact it was "the smallest operator by market capitalisation in the space ... [means it] could be the most exposed to sector consolidation from companies seeking UK rail expertise and market entry". Another in focus was BTG, and the pharmaceutical group edged forwards 0.6p to 257.5p after Société Générale named it as one of the companies most likely to be targeted this year.

Generally, however, its peers were weaker; GlaxoSmithKline was pegged back 34p to 1,314p and AstraZeneca dipped 32p to 3,161.5p as Morgan Stanley said it remained "cautious" on the sector, recommending profit-taking.

Elsewhere African Barrick Gold slumped 28.6p to 469p following the news that an attack at its North Mara mine in Tanzania had resulted in seven deaths.

Down among the small-cap groups, Yell charged up 0.44p to 7.13p after the struggling publisher of the Yellow Pages said it was aiming to grow its digital division so it would account for three-quarters of its business by 2015.

Meanwhile, Pinewood Shepperton retreated 7.62p to 198.25p as Mohamed al-Fayed announced he was pulling out of the running for the film studio, easing the way for the agreed 200p-a-share takeover by the tycoon John Whittaker's investment group Peel Holdings.