Market Report: Shire backed as bid target after offer for ERT rival

Shortly after Sanofi-Aventis confirmed rumours of its $18.5bn bid for Genzyme, the market was looking at other potential pharma targets. One big UK-listed name in focus was Shire.

Paul Diggle, an analyst at Ambrian Capital, said there was an obvious comparison between Genzyme and Shire, as their ERT – enzyme replacement therapy – businesses lead the market. Shire's ERT sales are expected to jump 45 per cent for 2010 to $800m, while he predicts Genzyme's will fall 2 per cent to $1.7bn.

Mr Diggle said: "We would be very nervous about a direct 'read across' from the Genzyme bid to Shire's valuation. However, its ERT business is a very attractive asset and the rest of the business is also growing strongly. This offer should at least be a reminder that Shire is one of the most attractive acquisition targets in the healthcare mid-cap arena." Shire's shares rose 4p to 1,406p.

Top of the blue chip risers was Arm Holdings, whose chips are used in Apple's iPad, following Intel's $1.7bn acquisition of Infineon's wireless unit. The 8.5 per cent rise follows Intel's indication that it will continue to use the Arm chip designs used by Infineon, while Lee Simpson, analyst at Jefferies, added: "Today's reaction is generally around the fact there's a potential M&A cycle happening, and one of the clear architectures you'd want in this space is probably Arm's." However, he cautioned. "It's erroneous to think anybody would buy it, however, because it comes with a lot of traps in the valuation." The shares closed up 29p at 366.9p.

Also up was Reckitt Benckiser. The household goods maker, with products including Cillit Bang and Vanish, received approval from the US Food and Drugs Administration for its suboxone sublingual film – basically a quick dissolving treatment for opiate addiction. The news released by its pharmaceutical arm helped the group add 78p to close at 3,266p.

Packaging group Bunzl issued results yesterday that were well received by the market. It beat forecasts with pre-tax profits of £125m in the first half of the year, sending the shares up 9p to 711p.

On the downside, Serco Group, the outsourcing specialist that does everything from running Australian prisons to the Docklands Light Railway, slumped after Bank of America Merrill Lynch withdrew its support. This comes a week after the company's shares jumped nearly 3 per cent off the back of strong results. The group fell 15p to 582p as the broker downgraded the stock to "neutral" from "buy" ahead of the Government's spending review in October. As the central government accounts for half its revenues, the review "is likely to be perceived as negative," it said, adding UK organic growth may well slow this year and the first half of next.

It was a mixed day for the miners as they fell initially with the metal prices. But most recovered, with Randgold Resources the pick, up 155p to 6,080p. Eurasian Natural Resources Corporation remained in the red, giving up 8.5p to close at 848p. The falls were possibly prompted by uncertainty over whether duty on metals in its homeland of Kazakhstan could be introduced, after a similar move announced by the Finance minister over crude oil.

Following on from a drop on Wall Street during the UK's bank holiday and then the Nikkei overnight, the FTSE 100 fell in the morning for the first time in three sessions. It was dragged lower by the initial weakness in the miners. Yet it recovered after lunch following the release of the latest US consumer confidence data. The better-than-expected numbers eased fears the economy would slip back into recession, helping to drive a recovery in London and sending the FTSE 100 up 23 points to 5,225.

On the second tier, UK pharmaceutical firm BTG fell shortly after announcing it was to pay Nycomed US up to $16.6m for the US rights to market its anti-poison drugs. CroFab is an anti-venom for the unfortunate victims of rattlesnakes, while DigiFab treats overdoses of heart-disease drug dioxin. Shares in the group were 4.6p lower at 201p.

Back up was Connaught, the troubled social housing group, whose share price had tumbled since it revealed it would make a loss for the year and rumours emerged that creditors were circling. The group has joined the 90 per cent club since June, plunging from 300p to less than 20p. It rebounded by 2.45p yesterday to 16.4p.

In the wider market, investors liked the sound of UTV Media, as the economic recovery and the World Cup helped drive up revenues, especially at its TalkSport station. News the group had reinstated its interim dividend helped push the stock up 7p to 113p.

Penny stock The Weather Lottery rose after signing a deal with Scottish football champions Rangers. News of the move to provide a full package of online betting and lottery to the club's fans saw shares close 0.25p up at 1.25p.

On the downside, knitwear group Dawson International slumped 5.8 per cent to 2p after it said pre-exceptional operating profits for the full year would be lower than last year due to increased commodity prices. Also down was Omega Insurance Holdings, a Bermuda underwriter, which reported a first half loss following the earthquake in Chile and the BP oil spill. The shares were down 0.5p to 90p.

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