Stock Market Week: Mega-mergers add to Footsie's power

FOOTSIE, the blue chip share index, will soon account for no less than 82 per cent of the stock market. It will achieve its increased dominance once the agreed mergers between Zeneca and Astra; British American Tobacco and Rothmans International; and Vodafone and AirTouch are completed.

The index will become even more overpowering if just a few of the rumoured mega-mergers thought to be under consideration are concluded.

It is a case of the rich getting richer and the poor getting poorer, as Footsie companies have grown larger and larger. In 1986 Footsie represented 70.9 per cent of the market. At the start of the decade it was 74.1 per cent and last year 80.4 per cent.

Mergers, privatisations and demutualisations have been the major influences behind its rampant growth. The tendency of big institutional investors to chase easily tradable blue chips rather than get caught in the tortuous byways of smaller companies has also helped.

Even within Footsie, power is more concentrated. The top 15 Footsie constituents are set, when the three mega-mergers go through, to represent no less than 53.9 per cent of the index and a remarkable 44.2 per cent of the entire market.

In 1986 the top 15 blue chips accounted for 46.5 per cent of Footsie and 32.9 per cent of the share community.

The way Footsie's dominance has become self- feeding has been illustrated by the huge merger between British Petroleum and the US Amoco oil group. Shares of BP Amoco have to a large extent managed to ignore the gloom which shrouds most oil shares because the merger forced tracker funds to pile into the new behemoth's shares. They needed to increase their weightings to accommodate the increase in the oil group's capitalisation caused by the takeover of the American business.

So while the shares of rival Shell, still short of anything approaching a major corporate deal, bump along at a three-year low, BP Amoco's display relative strength. They are below the year's peak of 968.5p but, at 822p, are still well above their 1998 low point of 737p.

BP Amoco, with a an pounds 81bn capitalisation, down from pounds 85bn when the new group first arrived on the market at the start of the year, is still the biggest Footsie constituent. Glaxo Wellcome (pounds 75bn) is in second spot with BT (pounds 60bn) at number three, although it may be overtaken by Vodafone- plus-AirTouch. The valuation of the present top awesome threesome is more than the whole of the small-cap sector of the market. The 15th biggest group is Halifax (pounds 17.5bn).

Halifax is one of the Footsie members thought to be contemplating corporate action. A merger with another banking group would, of course, push the former building society higher up the league.

Last year corporate action totalled pounds 90bn, up from pounds 64bn in the previous year. Biggest 1998 deal was the Commercial Union/General Accident insurance merger, worth pounds 6.8bn. The BP/Amoco merger will feature in this year's calculations.

Although most deals occur on the market's under-card, Footsie constituents are keen and, in cash terms, the major players. Perhaps offering another indication of blue-chip popularity among big investors, Robert Buckland and Jonathan Stubbs at Salomon Smith Barney ask: "Why play the merger and acquisition game with small and mid cap stocks when the real game is being played at the top end of the market?"

Underlining why they think the merger mania will continue, Bob Semple and David McBain at BT Alex.Brown offer a host of reasons.

They range from defensive mergers - BTR and Siebe - or disenchanted institutions flexing their muscles. They point out that improved pricing power can be generated through get-togethers; as well as opportunities for cost cutting. Strategic fit is another influence; the Zeneca and Astra deal, where the drug pipelines are complementary, and Vodafone and AirTouch, improving geographic spread, are cited as examples.

There is also management self-interest - "this can be undiluted megalomania but more often than not it is driven by greed - you get paid more for running bigger companies."

With the crude oil price in the doldrums the BP merger with Amoco was largely a cost-cutting exercise - cuddling together to keep warm. It was the biggest British strike for an overseas company and with the advent of Euroland, cross-border deals will gain more momentum.

Two Footsie constituents feature on this week's results schedule - Imperial Chemical Industries and BAA, the airports group.

ICI is a sad case of how to lose City support. Its shares have slumped from 1,244p to 543p as it has struggled to complete its transformation into a speciality chemical group.

Its year's results are in little doubt. It has indicated around pounds 315m, with a maintained dividend of 32p a share. What the market will be seeking with some anxiety will be details of its debt position. With the chemical market moving against it, ICI has failed to raise the expected cash from disposals. It needs to reduce its debt mountain, which could be around pounds 4bn. It is argued that the chemical giant should cut its debt to a more manageable pounds 1.5bn. It may have to undertake the sale of what has hitherto been regarded as core business. The depressed share price would make a rights issue difficult to accomplish.

BAA, with third-quarter profits, should roll out a modest gain, although a disposal could lift the figure to around pounds 130m against pounds 104m. The problems surrounding the probable end of European Union duty-free sales and details of any possible sale of its property division are likely to create more interest than the profit figures.

Life and Style
Social media users in Mexico who commented on cartel violence have been killed in the past
techTweets not showing up or loading this morning, users say
Sport
premier leagueLive: All the latest news and scores from today's matches
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
News
politics
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker