Market Report: Vedanta and Cairn soar after £6bn Indian oil deal

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The Independent Online

Like it or loathe it, Vedanta Resources soared to the top of the FTSE 100 yesterday as details of its takeover of the oil producer Cairn India, which have been dripping out over the past few days, were confirmed.

The controversial Indian mining (and now oil) company, which attracts criticism for its human rights and environmental record, saw its shares leap by 100p to 2,153p as the market absorbed the details of the deal.

Announcing plans to splash out as much as $9.6bn (£6.1bn) for a 51 to 60 per cent stake in the Rajasthan-based oil producer, Vedanta managed to claw back some of the losses it made last week – the stock was down nearly 20 per cent – when several analysts said they were concerned about the deal, given "Vedanta's stretched balance sheet". The company says it is well placed to meet the financing of the deal.

Any nervousness about Vedanta's ability to finance the deal seemed to be brushed aside as analysts praised the takeover. "This is a bold move but in our view Vedanta has never previously mis-stepped on a large-scale M&A. We regard this as a unique opportunity for Vedanta to add a differentiated commodity in its own backyard, and most importantly it has emerged with a majority controlling stake," said the analysts at Liberum Capital.

But it was Cairn Energy that eventually won the race for gold after vying for top spot with Vedanta all day. The exploration company's shares jumped 24.9p to 493.2p after it confirmed that the money from the sale of its subsidiary will be used to boost exploration in Greenland and to return "billions of dollars" to shareholders.



Away from yesterday's FTSE 100 pin-ups, the index of leading shares endured a mixed day, closing up marginally at the end, by less than a point at 5,276.1, after trading down for most of the day. The continued weakness followed the pattern of last week, when Mervyn King, the Governor of the Bank of England, and his counterpart at the US Federal Reserve, Ben Bernanke, warned that the previous growth estimates for next year were over-ambitious. Traders' nerves were hardly helped by data from Rightmove that showed that house prices in the UK declined for the second month in a row in July

And it was a mix of companies that continued to suffer, with a range of sectors represented in the bottom 10. The insurer Aviva hit the bottom of the pile, falling by 9.5p to 377.9p, after rebuffing rival RSA Insurance's £5bn offer for its non-life units, even though analysts warned that RSA would have to lift its offer by several hundred million pounds if it wanted to snare the business. RSA said that it remained open to talks, as its shares slid by 2.9p to 124.5p, but Aviva remained mute.

The 84 per cent taxpayer-owned Royal Bank of Scotland continued where it left off last week, when it lost a touch over 8 per cent amid concerns about the UK economy. Shares in the bank slipped by 1.05p to 45.92p.

The taxpayer was also out of pocket with Lloyds Banking Group, which sneaked into the bottom 10, falling 0.83p to 69.41p, on similar worries.

BP, which has seen its fair share of woe in recent months, was back among the laggards, declining 6.65p to 409.75p. The oil giant continued its suspension of the relief well and bottom-kill procedures, aimed at permanently plugging its Gulf of Mexico Macondo well, until it completes an analysis of complications that might result in a new oil leak.

It was not gloom for every company in FTSE 100, however. Several miners were buoyed as China, now undoubtedly the most important market for most of them, became the world's second-biggest economy behind the US. Xstrata put on 18.4p to 1,014p, Anglo American's stock rose by 38.5p to 2,409p and Kazakhmys ended the day on 1,176p, up 20p.

The price of gold was up 0.77 per cent to $1,224.2 an ounce yesterday, prompting renewed support for FTSE 100 new boys African Barrick Gold, which saw its shares rise by 13.5p to 562.5p. Despite the inflated price of the shiny stuff, some believe gold may scale the heady heights of $2,000 an ounce by the end of the year.



The FTSE 250 was also weak yesterday, but unlike the FTSE 100, the index actually finished the day in the red, losing 8.08 points to close at 9,774.23. The investment group Gartmore continued its disappointing life as a public company and made its mark as laggard-in-chief yesterday, falling 5.9p to 119.1p.

Gartmore's stock has rallied nearly 15 per cent in recent weeks as analysts have pointed to the group as a takeover target, not least for rival Henderson, which has clearly been alerted to Gartmore losing a third of its value since listing last year. The falls come after reports over the weekend suggested that Henderson (up 1.4p at 131.5p) is not that keen after all, and ahead of Gartmore's first-half results today.

Hunting, the oil and gas services outfit, was the runaway winner on the FTSE 250 after its finance director, Peter Rose, said that the group continues to look for more acquisitions and that it would favour debt market funding to back a transactions. The comments come as the group announced the $125m buyout of the electronic technology company Innova-Extel. Hunting's shares closed up 37p at 561.5p.

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