Market report: Wednesday Close
Intense speculation that Centrica could soon become the target of a bid by German utility E.On briefly drove shares in the British Gas group to a new high today, providing one institutional investor with the opportunity to dump £158m worth of them on the market.
A parcel of 40m. less than 1% of the company, was placed in the market at 395.4p. But the price initially took the sell-off in its stride, adding 1¾p to a record 395p. However, by the end of the day it fell 1¾p to 391½p.
City speculators feel confident E.On will eventually launch a bid for Centrica, having earlier this week dropped its £28.4bn offer for Spanish rival Endesa in favour of buying power-generation assets in France, Spain and Italy.
Such a move might be bad news for shareholders of Scottish and Southern Energy, unchanged at 1582p, which is also seen as vulnerable to takeover from the likes of E.On.
Citigroup says any bid for SSE would have to be worth about 2000p as the company is the last of the mid-sized European utilities with a 100% free float. As a result, the US broker has agreed to raise its target for SSE from 1525p to 1760p, saying the company would appeal to both trade buyers and private equity.
Bid hopes have also been rekindled at SSL International, which led the Footsie 250 constituents higher. Shares in the Durex condoms and Scholl footwear group shot up 26¼p, or 7%, to 426p as more than fivem changed hands. US outfit Johnson & Johnson was being tipped as a bidder along with Reckitt Benckiser and L'Oréal. The speculators say private equity may also be interested in making a bid for SSL, which is capitalised at £765m.
Elsewhere in the healthcare sector, Citigroup was placing 15m shares in Smith & Nephew at about 644p. Speculative buying has carried shares of the artificial-joints maker to a record 650p, having come up from a low of 533¾p this year. They today fell 10½p to 639p.
S&N has looked increasingly vulnerable to takeover after being beaten to the punch on several high-profile acquisitions, which included the near-11bn (£5.6 billion) takeover of rival Biomet in December. Biomet was bought by a consortium of privateequity companies, including Goldman Sachs, Kohlberg Kravis Roberts and Texas Pacific. Speculation was that the consortium would turn its firepower on S&N next.
Share prices generally traded within a narrow range, unable to cash in on the strong gains recorded on Wall Street overnight and in Asia this morning. The FTSE 100 fell 1.4 to 6364.7 as the financial year began to draw to a close.
ICI fell 1¾p to a record 538p. This time, the Dulux paint group is being linked with Dow Chemical of America. Brokers say a bidder might have to offer up to 700p a share.
A line of 15.4m Serco International-came on offer at 462p. The support services group responded with a fall of 7¼p to 462½p. Am Blacks Leisure shares were also on offer, at 300p. Dresdner Kleinwort is reckoned to have completed the business.
Home Retail Group led blue-chips higher with a jump of 11¼p to 460¼p after Citigroup raised its rating on the shares from hold to buy and its price target from 450p to 500p to reflect an increasingly favourable risk/reward valuation. The broker believes HRG has respectable, rather than spectacular, prospects for the next two to three years. Talk of a private-equity takeover will help underpin the share price.
Specialist life assurer Resolution, up 9p at 634p, has been upgraded from underweight to neutral by JPMorgan, with its price target raised from 600p to 640p on the back of yesterday's results.
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