Market Report: M&A spotlight prompts Tullow Oil to move up

Investors were licking their lips at the prospect of bid activity in the oil sector, after Tullow Oil was highlighted as a potential merger and acquisition candidate.

In a note looking at what 2011 may hold for the European oil exploration and production companies, Bank of America Merrill Lynch suggested that the sector may continue to see a high level of M&A activity.

Of the companies they looked at, the broker's analysts picked out Tullow, which in September was the subject of gossip about a potential unnamed bidder. They called it "a potentially attractive consolidation candidate for national and international players looking to add growth to their portfolios", thanks in part to its presence in Ghana.

Named as one of BofA Merrill Lynch's preferred picks, Tullow put on 19p to 1,197p. Also benefiting from being picked as M&A contenders by the broker were Premier Oil, which made 33p to 1,915p, and BowLeven, gaining 8.5p to 357p, with their "unique sets of assets", in the North Sea and Cameroon respectively.

Overall, it was a quiet day for the FTSE 100, but the top tier index did finish in positive territory, up 24.96 points to 5,770.28, despite Moody's adding to investors' worries over the eurozone's economic state by downgrading Hungary's credit rating.

Meanwhile,the chairman of the US Federal Reserve said that there could be more quantitative easing to come in the future. Ben Bernanke was speaking following disappointing non-farm payroll numbers last week.

Rio Tinto booked gains of 40.5p to 4,456.5p after the Australian company Riversdale Mining said it had received a $3.5 billion bid approach from the miner. Although Rio has not made a concrete offer, some believe the news could flush out interest from other companies, with Anglo American and Xstrata some of the names involved in speculation.

There was a run of good news yesterday for Rolls-Royce, which rose 13p to 640.5p. First, Singapore Airlines revealed that it will use Airbus' A380 model on its Singapore to Los Angeles route, despite the failure of a Rolls-Royce engine in one of the planes last month.

The engineering giant also announced it had won energy contracts worth $110m, while BofA Merrill Lynch changed its advice on the group to "buy" and chose it as one of its top picks.

The broker was less keen on Cobham, downgrading its advice to "neutral", and it finished at the bottom of the blue-chip index, sliding 4.8p to 194.5p.

Just behind it was Randgold Resources, following fears over the political stalemate in the Ivory Coast after its election. The gold miner tried to reassure investors that its Tongon mine in the north of the country was "operating normally", but it was still driven back 145p to 5,885p.

There was a huge jump of nearly 30 per cent for De La Rue on the FTSE 250, after it announced that it had rejected what it called a "highly opportunistic" approach from Oberthur Technologies.

The French company made an indicative offer of 905p-a-share, which helped the banknote producer to shoot up 193.5p to 841p, its highest point since production problems knocked it back in July.

Despite the negative response, Oberthur clearly wasn't ready to give up quite yet, and released a statement saying that it "hopes it can agree a basis for the board of De La Rue to recommend an offer".

It may have been a bit less dramatic, but investors were still enthusiastic over reports that Punch Taverns is being targeted by the private equity group CVC.

Speculation over an approach saw the pub group move 4.3p upwards to 69.25p, even as Seymour Pierce poured cold water on the idea. The broker said that "such a bid for the whole Punch group is unlikely to materialise unless it comes from a 'specialist'," and it kept its "sell" advice.

down among the small-caps, outsourcing company Mouchel confirmed that it had received a number of approaches, and it gained 15.75p to 75.31p. The group said the interest was a result of its share price decline, knocked by the Government's spending cuts, and that the offers do not "reflect the true value" of Mouchel.

The company remains well off its price at the start of 2010, when it was trading at around the 260p mark. The future does not look too bright either, with its interim management statement warning investors yesterday to expect "the challenging market conditions of the last six months to continue for some time yet".

There was devastating news for those who piled into Desire Petroleum last week as the result of an announcement that it had made an oil find. After analysis, it has been discovered that what they found largely consists of water; Desire said the site will now be plugged and abandoned and its price was decimated by 66p, closing on 67.25p.

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