Market Report: Woodside share sale puts the spotlight on Billiton

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All eyes were on BHP Billiton's next move yesterday, as talk of a possible bid for Woodside Petroleum was reignited following the news that one of the Australian oil and gas company's major stakeholders is to sell a chunk of its shares.

Royal Dutch Shell announced that it is planning to sell 10 per cent of Woodside – about a third of its stake – for $3.35bn, and that it could sell the rest if there was a takeover bid. Woodside, Australia's largest oil and gas company, has often been talked about as a potential target for BHP, and its shares rose last week following the Canadian government's decision to block BHP's takeover attempt of Potash Corp.

"If BHP's bid for Potash Corp is unable to continue, based on political reasons," said Paul Cliff, an analyst from Nomura, "then I think Woodside would be towards the top of the deals that could make sense."

Mr Cliff said that the decision by Shell to sell part of its stake in Woodside meant a BHP takeover was more likely to happen given that "you've got the majority shareholder flagging that it's a willing seller".

Following the announcement by Shell, which ended the session 25.5p down at 2,058.5p, BHP lost 19.5p to finish on 2,430.5p. One trader said the fall in share price was not a sign that investors were worried about any potential takeover of Woodside, but instead was "a healthy pull-back", citing the stock's strong performance since the latest developments over the Potash bid.

Overall, the FTSE 100 lost some ground after the index reached its highest point for more than two years last week, and closed at 5,849.96, 25.39 points down.

Leading the blue-chip index at its close last night was Inmarsat, after an update from the satellite operator which saw the firm post a 18.4 per cent earnings increase in the third quarter, and it put on 20p to 695p. Also doing well was Invensys, up 6.8p to 320.3p, following the re-emergence last week of rumours that the engineering and industrial controls company is being sized up for a takeover.

It looked as if it was going to be another session full of doom and gloom for Rolls-Royce Group, with a third day of falls beckoning in the wake of one of its engines failing in a Qantas plane last Thursday. Yet, despite dropping to 563.5p at one point in the morning, the engineering giant enjoyed a remarkable surge in the last 40 minutes of trading and finished on 607p, up 16p.

The recovery came on the back of the announcement of a $350m deal with EgyptAir, while Morgan Stanley also gave it a boost. The broker – despite saying that it was awaiting with interest the report on why the engine failed – kept the company on an "overweight" recommendation, saying that its strong balance sheet meant it was in a "strong position to deal with any financial liabilities that might occur".

Another climber was BSkyB, which revealed yesterday that it had signed up its 10 millionth customer. The broadcaster estimates that its service is now in 36 per cent of UK households, and it gained 8p to 728p.

At the opposite end, Royal Bank of Scotland slumped to the bottom of the index, down 1.36p to 43.64p, showing that last Friday's update had not gone down too well with the market. It was not well-received by Nomura either, which has the bank on a "reduce" rating.

The broker's analyst Robert Law said that to "show value the group either needs to improve core business profits further, or have surplus capital". He added: "We continue to prefer Lloyds, which does not require margin or pre-impairment profit gain to show value in our view."

there was one stock that stood out on the FTSE 250, and it was not for a good reason. Gartmore revealed that its high-profile fund manager Roger Guy was retiring and, as a result, it managed to dramatically drop 18.9p to 107p. Since it was floated at the end of 2009, the fund manager's share price has fallen by more than 50 per cent. Of the mid-tier index's gainers, advanced 2.85p to 88.5p following recent comments from the founder of the price-comparison website, Simon Nixon. Mr Nixon said that he would consider bids for the company, and that Credit Suisse was acting as an adviser after various expressions of interest. One name that has been attached to a potential deal is the private equity company, Apax.

Also up was Savills, the upmarket estate agent, whose latest results included a year-on-year rise in third-quarter revenues of more than 65 per cent in Hong Kong. Its UK arm beat forecasts as well and it booked gains of 13.5p to 359.8p.

on the AIM, rumours going around last week about a bid for Caledon Resources were confirmed by the miner, which announced that it has accepted in principle a $406.2m offer from the state-owned Chinese company Guangdong Rising Assets Management. The deal has a number of hurdles to clear before it is finalised, but the news drove Caledon's price 14p up to 98p.