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Power-crazed dealers expect Atlantic action
Utility stocks remained in focus yesterday. The sector was set alight this week when Germany's E.ON launched a €29bn (£20bn) bid for Spanish rival Endesa and the belief in the Square Mile is that another deal is about to break, but this time across the Atlantic.
The latest speculation centres on National Grid and talk that it has made a $7.6bn (£4.3bn), or $44-a-share, offer for KeySpan, the fifth largest natural gas distributor in the US.
On Friday, Brooklyn-based KeySpan admitted it had received offers from several companies. Analysts would not be surprised if National Grid was one as the company is keen to expand its presence in the US, where it makes 40% of its profits, and develop a strong gas business.
However, they warn that any offer from National Grid will probably be made in cash and that means the company may require a rights issue or share placing to help finance the deal. National Grid closed 1p cheaper at 597.5p.
In the wider market, leading shares closed lower, weighed down by Reuters, which fell 51.75p to 399.5p after results disappointed, and weakness in the mining and oil sectors. The final scores showed the FTSE 100 down 36.4 points at 5836. Elsewhere, the FTSE 250 fell 5.8 points to 9467.4, while the FTSE Small Cap index faded 1.8 points to 3558.
ICI was among the session's biggest FTSE 100 fallers. Its shares slipped 9.5p to 341.5p unsettled by news that a Rhode Island court had found three former paint makers liable for poisoning children in a lead-in-paint case. Dealers said the ruling had revived liability concerns for ICI. Broadcaster ITV, off 2.25p at 111.25p was also under pressure after UBS, one of its corporate brokers, cut forecasts citing the poor performance of its flagship channel ITV1.
Elsewhere, Cadbury Schweppes eased 5.5p to 580.5p on profit taking. However, the shares closed well above their mid-morning low, lifted by talk that Cadbury's is to take control of the Dr Pepper/Seven Up Bottling Group, the largest independent manufacturer and distributor of soft drinks in the US.
At the moment the company is jointly owned by Cadbury and private equity group Carlyle. Were Cadbury to buy out its partner, traders reckon it would pave the way for a demerger of its US drinks business, something that would go down very well in the Square Mile as it would allow Cadbury to concentrate on its chocolate and chewing gum businesses.
Cairn Energy, the oil exploration company focused on India, managed to buck the weak market trend. Its gain of 77p to £19.57 was fuelled by Indian press reports which claimed ONGC, the state-owned oil company, is about to make a bid.
However, analysts said there would be little sense in ONGC buying Cairn as it would not boost India's oil reserves. They reckon Cairn is much more likely to fall into the hands of one of the several international oil groups seeking to gain entry to the fast growing Indian market.
Cable & Wireless, 2.5p stronger at 110p, was also in demand on the back of stake building and takeover rumours. Apparently a private equity group has secured a credit line for a bid.
In the banking sector, Royal Bank of Scotland rose 20p to £18.38 on hopes that Tuesday's full-year figures will impress. Analysts noted that the highlight of this week's results from rival Barclays, 2.5p stronger at 666.5p, was the strong performance of its capital markets division. All of which bodes well for RBS, which also has a big capital markets business. In fact last year, RBS's corporate banking and financial markets division generated nearly 40% of group profits.
Aviva rose 12.5p to 771.5p after JP Morgan predicted the insurer would quash speculation of a merger with rival Prudential, off 1p at 615.5p, when it reports results on March 2nd.
"Despite the persistent speculation that Aviva and Prudential will combine we see little justification. Cost synergies would be low and the transaction significantly dilutive to Aviva's earnings," said JP Morgan analyst Gordon Aitken.
Traders, however, were surprised by Mr Aitken's comments given that two weeks ago he ignited speculation of a tie-up between the two insurers when he told investors that a combined company would be well placed for growth and could become a national champion. They also noted that JP Morgan Cazenove is one of Aviva's two corporate brokers.
Lower down the market, casino operator Stanley Leisure climbed 21.5p to 875p as rumours of predatory interest from Rank, operator of the Grosvenor casino chain, resurfaced. The belief in the Square Mile is that Stanley rebuffed a 900p-a-share offer and that Rank, up 0.5p at 269p, could return with an improved offer.
Pixology, the digital photo-processing specialist, which boasts Lord Young of Graffham, the former Conservative trade minister, as chairman, moved up 7.5p to 49.5p as an overhang was cleared and rumours of a bid from Hewlett- Packard did the rounds. French Connection eased 2.5p to 252.5p despite Brandes, the US value investor, declaring a raised holding of 5.6%.
Southampton Leisure, owner of Southampton Football Club, was in the spotlight yesterday after 9% of the company changed hands at an 11% premium to the opening price. Andrew Cowen, managing director of Southampton Leisure, said he did not know the identity of the buyer, which must make itself known to the company in the next 48 hours. City traders reckon the mystery buyer could be connected to Andrew Strode-Gibbons, a south coast businessman who wants to oust chairman Rupert Lowe. If the buyer's holding was increased to above 10%, an extraordinary general meeting could be called to ask shareholders to vote Mr Lowe, who owns just over 6% of the company, off the board. Southampton shares closed unchanged at 45p.