Market Report: Fading bid hopes push Smith & Nephew back

Toby Green
Tuesday 19 April 2011 00:00
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With their hopes of a bid seemingly in tatters, investors who had piled into Smith & Nephew (S&N) in anticipation of a takeover deserted the group last night, leaving the prosthetics manufacturer deep in the red.

Speculation that it could be targeted by Johnson & Johnson (J&J) has played a large role in the group rising more than 25 per cent since last September, with the US giant even reported to have had an approach worth £7bn rejected at the end of last year.

However, it appears as if the group – which makes false hips and knees – has been jilted for another company, after the Swiss medical products manufacturer Synthes confirmed yesterday that it had entered into talks with J&J following reports over the weekend of a $20bn approach. The news prompted S&N to dip as low as 660p in early trading, though a slight recovery meant that by the bell it was 21p behind at 675.5p.

Yet despite the gloom, not everyone was ready to give up on its takeover chances quite yet. Seymour Pierce's Mike Mitchell – who argued the anti-trust issues in any deal between S&N and J&J could have been "considerable" – said that "the potential for a bid remains". Meanwhile, Matrix's Navid Malik said that J&J's approach of Synthes may be "a signal of the emergence of a new wave of consolidation in the devices industry", of which S&N could be a participant.

Overall the FTSE 100 saw a huge dip of 125.93 points to 5,870.08 – its lowest level for nearly four weeks – following the decision by the rating agency Standard & Poor's to cut the outlook for US sovereign debt to "negative". Only two companies finished ahead, and the miners were among the major fallers, with Antofagasta shedding 68p to 1,304p while Anglo American and Fresnillo retreated 155.5p to 2,983p and 61p to 1,514p respectively.

The banks were also in the red, after their Irish government-backed counterparts had their ratings reduced by Moody's, and Royal Bank of Scotland slipped back 0.86p to 41.81p while Lloyds Banking Group was left 1.28p lower at 58.83p.

ITV was ahead for most of the day as Jefferies International changed its rating on the broadcaster from "underperform" to "hold". The broker said that, despite the television market currently doing worse than expected, ITV's recent terrible run – which has seen its share price shed more than 20 per cent since the start of March – means it "now looks reasonably valued". However, the supportive comments were not enough to prevent it eventually edging down 0.3p to 73.45p.

there was one standout performer on the FTSE 250, as Bwin.Party rocketed up nearly 30 per cent. The gambling group had lost almost 67p since Germany announced strict new proposed regulations for the country earlier in the month, yet it climbed 39p to 170p yesterday in a reaction to the crackdown by the US authorities on gaming websites.

A number of poker sites in the country were shut down on Friday, with a range of charges brought against their operators, and Peel Hunt's Nick Batram said that not only would the European companies benefit from customers searching for new sites but that the move could end up easing the path for the introduction of legislation on online gambling. The unexpected boost also helped Playtech on the Alternative Investment Market (AIM) to surge 23.75p to 339.5p, while the small-cap group 888 was lifted 6.75p to 41.5p.

In the wake of the software group's large drop on Friday following the surprise departure of its chief executive, Nigel Clifford, Micro Focus managed a decent rise of 15p to 306.8p despite fears over the direction of the company. Citi's Timothy Shaw, who cut his rating to "hold", was among those with concerns, saying that Mr Clifford's departure "has created yet another hurdle that Micro Focus must overcome in restoring confidence with investors".

Also near the top was Jupiter Fund Management, driven up 2.3p to 291p, after its announcement that its assets had increased by 2 per cent over the first quarter. Kenmare Resources was another updating the market, but despite revealing a full-year pre-tax loss nearly half that of the previous 12 months, the miner dropped 1.53p to 48.05p.

desire petroleum had its share price decimated, plummeting 25p to 15p on the AIM, after the Falklands-focused oil explorer revealed it was plugging and abandoning its Ninky well, the latest disappointment for the energy group. "While [it] stresses the continued prospectivity of its licence blocks... the question mark of how Desire will fund additional activity is likely to weigh on the shares, especially given all six wells drilled to date have been unsuccessful," analysts from Evolution Securities said.

Crosby Asset Management's shift of 1.42p to 4.62p was in the other direction as sentiment around it was helped by the news that Roman Abramovich's son Arkady now holds more than a quarter of the penny stock's shares.

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