FTSE in-depth: Big Blue on the acquisition trail

By Geoff Foster for MailOnline
Updated: 03:28 EDT, 22 October 2010

Affectionately known on Wall Street as Big Blue, the ubiquitous multinational computer giant IBM is on the acquisition trail. Industry sources suggest it has Micro Focus International at, or very near, the top of its shopping list.

Foster: The fabulous Footsie retrieved an initial 30 point mark-down to trade 58 up.

Shares of the Newbury-based business software group rallied from a friendless 375.75p to touch 385p and close a fraction dearer at 382.6p amid vague late gossip that IBM could be lining up a knock-out £1bn-plus cash bid, and is willing to pay up to £6 a share to gain control.

Micro Focus looks vulnerable. It was sold down to £3 in August following a disappointing trading statement which said that ' revenues were flat in its first fiscal quarter and management has had to slash its sales outlook for the full year'.

It blamed the poor first quarter performance on delays to several 'significant transactions' and fewer low-value deals across its operations.

Its shares have since rallied sharply on takeover hopes and when Mike Phillips, who helped Morse stave off insolvency, was appointed group financial officer. He took up his full-time position on October 4 and could have some input when Micro updates the market on trading on November 10.

IBM recently reported top-of-the-range third-quarter figures and chairman and chief executive Samuel J. Palmisano said that overseas acquisitions were still very much on the agenda.

The fabulous Footsie retrieved an initial 30 point mark-down to trade 58 up before closing 28.93 points to the good at 5,757.86. The FTSE 250 added 72.83 to 10,904.69. Dealers were delighted to see another early 100 point leap on Wall Street following yet more impressive third-quarter earnings figures and jobs data which confirmed that the world's biggest economy should avoid a double-dip recession.

Sentiment on the Street of Dreams was also helped by growing expectations that the Federal Reserve will on November 3 pump more cash into the economy to help stimulate the recovery. Neil Mackinnon, global macro strategist at VTB Capital, says 'a lack of Fed consensus on QE2 will likely see a 'drip feed' approach of say $100bn per month rather than a 'shock and awe $1 trillion stimulus'.

Forecast-busting figures from Danone helped household goods giant Reckitt Benckiser jump 134p to 3550p. Panmure Gordon advised clients to buy ahead of the third-quarter figures on November 2.

Supported in early trading up to a 10-year peak of 1240p, Guinness and Smirnoff drinks giant Diageo succumbed to profit-taking and closed 27p better at 1187p. It has underperformed other luxury goods groups this year and has recently been the subject of some hefty activity in the option market. LVMH yesterday denied it had plans to sell its 66pc stake in Moet Hennessy to Diageo, which already owns 33%.

Afren gushed 16.5p to 132.3p on hefty turnover of almost 16m shares. Sector analysts were all bullish after subsidiary First Hydrocarbon Nigeria agreed to acquire a 45% interest in the onshore licence OML26 in Nigeria from Shell, Total and Agip for £118m.

Cambridge-based Xaar soared 40.98p, or 23%, to a year's high of 218p following a better-than- expected third- quarter trading statement and £15m share placing at 170p.

Mike Savage, who runs the Killik Capital Special Situations portfolio, increased the fund's interest to 4% from 3.4% saying cash raised will fund a very significant increase in the productive capacity of one of its digital inkjet printheads. Indeed, production is expected to increase to 45,000 by the end of 2012. At £1,500 a pop and earning a 50% gross margin, they would provide £33m of gross profit.

Technology group OMG leapt 3.75p to 30p on hearing that full-year turnover is expected to be in excess of £30.5m, generating profits well ahead of market expectations.

Following recent upbeat management presentations to institutional investors, Judges Scientific advanced 27p to a peak of 410p. Bond International Software, which provides software for the international recruitment and human resources industries, improved 13p to 66.5p.

It followed the acquisition of VCG, a US focused software provider to the recruitment industry, partly financed by the placing of 3.5m shares and 4.7m convertible stock at 75p per share to raise £6.17m.

Proximagen, a company focused on diseases of the central nervous system, closed flat at 109p despite chairman Peter Allen's purchase of 20,000 shares at 113p per share.