Market Report: Xstrata extracts fresh interest from Vale bid talk

Mining sector investors, hitherto transfixed by China's attempt to interpose itself between Rio Tinto and rival BHP Billiton, renewed their interest in Xstrata yesterday.

Vale, the Brazilian mining giant, which confirmed its interest in the company in January, is expected to make a formal approach soon and, yesterday, as the Rio-BHP saga continued to unfold in the background, the market was abuzz with speculation about the value of the prospective offer. While estimates varied during the course of the day, most pegged Vale to bid around 4,500p per Xstrata share.

There was also detailed talk about the finances – Vale is believed to have drafted the assistance of some leading city banks, including HSBC, Lehman Brothers, Citigroup and Credit Suisse. They, it was being speculated yesterday, would likely seek to finance the acquisition with a two-year bridge loan, similar to the one employed to aid Vale's 2006 acquisition of Inco, the Canadian nickel maker.

The chatter took Xstrata's stock to 3,835p, up 45p or 1.19 per cent.

On the downside, bid speculation failed to rescue Antofagasta. Early-morning whispers suggested the company had caught the fancy of a prominent sector counterpart.

The rumours, which, by mid-afternoon, had the unidentified suitor working on a formal bid, were neutralised by weak copper prices, which pulled Antofagasta's stock down by 0.22 per cent, or 1.5p, to 674p.

Others in the sector, including Rio Tinto, which closed down 0.31 per cent or 17p at 5,417p, BHP Billiton, which shed 4.82 per cent or 77p to 1,520p, and Vedanta, which was off 2.54 per cent or 49p at 1,882p, were also the victims of bearish investor sentiment and weaker metal prices.

ITV, the broadcasting company, was buffeted by bid talk again. A group of private equity companies, including Apax, Kohlberg Kravis Roberts and Provident, were rumoured to be interested in an approach earlier in the week. The talk dried up on Tuesday, when fresh speculation suggested that Apax wasn't mulling an offer after all. Investors, however, were still excited by the prospect yesterday.

As one trader said: "The fact that Apax is probably out doesn't matter – a takeover is still likely. It just narrows the field." The company's shares closed up 2.96 per cent or 2.2p at 76.6p.

Overall, the FTSE 100 ended firmer. After spending most of the day in the red, UK blue chips got a boost from a triple-digit Wall Street rally which helped lift the market ahead of today's interest rate decision from the Bank of England. By the close, the index of 100 leading shares was up 7.4 points to 5,875.4.

Along with ITV, Shire Pharmaceuticals was the subject of some bid talk. Both Barr Laboratories and AstraZeneca were touted as potential bidders, and Shire stock closed up 0.89 per cent or 8.5p at 960.5p. AstraZeneca closed down 1.79 per cent or 37p at 2,028p.

Both Unilever and Smith & Nephew registered gains ahead of results, which are due to be published today. By the close, Unilever was up 2.41 per cent, or 39p, to 1,655p, while Smith & Nephew was up 0.64 per cent, or 4p, to 625p.

The FTSE 250 failed to replicate the FSTE 100's late-afternoon recovery, closing 0.51 per cent, or 50.8 points, lower at 9,904.

Continued speculation about the fate of Northern Rock took the embattled lender's stock up to the top of the index. It climbed 8.89 per cent or 8p to 98p by the end of the day.

Northumbrian Water wasn't far behind, perched at fifth place, after investors, attracted by continued hopes of consolidation activity among small utility companies, moved in to the stock. The company's shares rose 4.2 per cent or 14.5p, by the close.

Dresdner Kleinwort helped Party Gaming slide in behind Northumbrian, at eighth place on the leader board.

Noting that the industry was "still relatively nascent and growing at 20 per cent-plus per annum", the broker advised investors to buy the stock. The company's shares closed up 3.85 per cent or 1p at 27p.

The car retail company Pendragon enjoyed its own rally as investors sniffed a potential takeover offer. The company, which operates from nearly 400 retail sites, gained almost 5 per cent or 1.5p to 31.75p.

On the Alternative Investment Market, Earthport, the electronic payment systems company, also had a good day on the back of some bid speculation.

The company, which issued a bullish trading update last month, was buoyed as rumours of some aggressive stake building by interested parties began circulating late in the afternoon, taking the shares up by almost 10 per cent or 6.75p to 74.75p.