Market report: Wednesday close
No sooner had the ink dried on BHP Billiton's increased offer for Rio Tinto than City speculators were searching for the next likely bid target in the mining sector.
If the gossip is to be believed, Brazilian mining giant Companhia Vale do Rio Doce will launch a bid any day now for Anglo-Swiss mining outfit Xstrata.
Vale has already been given clearance by the Brazilian government to make such a move, and is putting in place the finance. Word is that Vale will offer 4500p a share, which would value Xstrata at almost £44bn.
Reports claim the bid could prove expensive for Vale, with the consortium of banks providing the finance charging a risk premium of between 75 and 200 basis points on top of the loan facility.
Dealers said this wide range of risk premium reflects the maturities of the different tranches of the loan facility and their ratings. Shorter-dated tranches will come with lower yield margins while the longer-dated parts of the facility will be wider. Despite the bid talk, Xstrata shares responded to the talk with a rise of 45p to 3835p.
BHP Billiton fell 77p to 1520p after upping its terms for Rio to $174.4bn (£88.54bn) and announcing its first drop in profit in more than five years. Rio dipped 17p to 5417p, noting that the largest part of the improved terms are made up of BHP shares.
But speculators say there is no guarantee that BHP has offered enough to win the day. The terms still fall short of the 6000p a share Chinalco paid for its 9% stake in Rio last week. Chinalco has said it reserves the right to bid, but with Hong Kong now closed for the Chinese New Year, it is unlikely that any response will be forthcoming before Monday.
Lonmin International climbed 40p to 3003p despite Citigroup becoming the latest broker to take a bearish stance of the platinum producers' prospects. The US broker says Lonmin is under pressure to perform.
Shares generally opened cautiously following the 370-point sell-off on Wall Street overnight - its worst performance in a year. London traded for much of the day within a narrow range but a rally on Wall Street this afternoon helped the FTSE 100 index to gain 7.4 points at 5875.4. City investors are pinning their hopes on the Bank of England cutting rates by at least a quarter-point tomorrow.
J Sainsbury firmed 7¼p to 376¾p after Morgan Stanley slashed its target from 464p to 380p. Drugmaker Shire extended this week's gains with a rise of 8½p to 960½p. There is talk AstraZeneca, down 37p at 2028p, may now put in a bid.
Tate & Lyle fell 5¾p to 476p after activist shareholder Harbinger Capital raised its stake to 45.36m shares, or 10%. Tate & Lyle dropped out of the Footsie 100 last year after a profit warning.
Citigroup has turned negative of Royal Dutch Shell, up 1p at 1726p after going ex its 18.1p dividend, and BP, 1½p better at 544½p, following their full-year numbers. But Deutsche Bank has raised BP's target price from 670p to 740p and says the board's decision to raise the dividend more than 30% speaks volumes about confidence.
Takeover favourite Rank was unchanged at 90¾p after Hong Leong of Malaysia topped up its holding to 23.6m shares, or 6.05% of the company. It emerged in December that another Malaysian company, Genting, had bought a 9.4% stake in Rank following several profit warnings that had seen the share price slump to record lows. There was talk late last year that Harrah's Entertainment in the US had also looked at its options.
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