MARKET REPORT: Investors hip to Smith & Nephew as rumours intensify over Stryker Corporation knock-out bid

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According to the powers that be, corporate financiers have been burning the midnight oil working on an absolute Christmas cracker of a mega-deal which could push the fabulous Footsie through the magic all-time high level of 7,000.

Shares of artificial hip and knee replacement group Smith & Nephew rallied from 1069p to touch 1093p before closing 6p better at 1087p as rumours intensified that rival US medical technologies firm Stryker Corporation will strike with a knock-out £13billion-plus or near £15 a share cash bid when its Takeover Panel handcuffs are removed at the end of the month.

Following intense bid speculation in May, Stryker said that while it had been in early stages of considering an offer for S&N, it would not be proceeding with an offer. Under takeover rules it was immediately precluded from making an offer, should it wish to do so, until the end of November.

US medical technology group Medtronic had also had a good look at S&N before forking out a mammoth £25.3billion on Irish firm Covidien, leaving the way clear for Stryker.

Rumours have been rife in recent weeks that S&N could be looking to sell its wound care business for £2.6billion. A bidder (Stryker?) would obviously be keen to pounce before it concludes any sale.

Last month’s third-quarter figures from S&N showed a 3 per cent rise in profits which mainly reflected ‘stand out’ growth in knee and hip replacements in the US.

S&N has been feted as a potential bid target since the failed takeover attempt by Unilever in 1968. Analysts remain cautious on the stock and a recent comment by broker Berenberg says it all. ‘We fail to see where the upside can come from aside from a bid,’ it said.

AstraZeneca lost 55.5p to 4,711p on fading hopes that US giant Pfizer will return with another offer when its handcuffs are removed. Pfizer pitched a £69billion or £55-a-share merger plan, which was rebuffed by Astra. Pfizer then walked away and under UK takeover rules cannot return with a higher offer until next Wednesday unless Astra reopened discussions. Respected fund manager Neil Woodford this week said there was only a 50/50 chance of Pfizer approaching Astra again. Really! There’s nothing like sticking your neck out, is there?

Heavyweight miners dragged the Footsie 17.7 points lower to 6678.9 following a further fall in the iron ore price and weak data from top metals consumer, China. Blue chips closed above the worst after Wall Street recouped an early 80 point deficit. Down 48 per cent so far this year and 13 per cent over the past month, the iron ore price continued to trade around the depressed $70 a ton level, which did not help Rio Tinto, 77p down at 2865p, and BHP Billiton, 42.5p off at 1582.5p.

Sellers kicked into touch shares of Mike Ashley’s Sports Direct International, 15.5p easier at 638p, on hearing that Citigroup had downgraded its earnings forecasts because unseasonal warm weather has hit sales. The broker cut its interim pre-tax profit forecast by £5m to £165m and its full-year estimate by £15million to £293million.

Insurer Friends Life rose 6.8p to 343.3p on vague European takeover speculation.

A RBC Capital Markets upgrade to outperform lifted BG Group 18.5p to 1046p. The broker reckons the group’s valuation premium is the lowest since 2009 and it sees compelling value at current levels.

Still reflecting the recent dire trading statement, Serco plummeted 13.5p more to 179p. The group wrote off the value of its operations by £1.5billion and said it would turn to investors for emergency cash to help rebuild the firm. Chairman Alastair Lyons fell on his sword.

Leisure airline group Dart advanced 14.5p to 267p following in-line interims. Buyers ignored news that the company is putting £17million aside for passenger compensation claims. Dart plans to add four new planes this year, taking the fleet to 58 planes, and four new eastern Mediterranean destinations next summer.

Churchill Mining cheapened 1.5p to 20.5p after suffering a setback in its international arbitration case against Indonesia, announcing that the International Centre for Settlement of Investment Disputes tribunal in the US has agreed to Indonesia’s request that ‘issues of document authenticity’ be considered as a preliminary matter. Churchill is claiming for £841million.

Amur Minerals rose 13 per cent to 6p on hearing the next step to obtaining the ‘detailed exploration and production licence’ for the Kun-Manie copper sulphide project has been initiated.

Agricultural bioscience group Plant Impact improved 1.5p to 35p following a positive trading update. It saw a significant increase in revenues and a move into the black in the first quarter.

- Ubiquitous nomad and broker Zeus Capital could end the year with a bang. Dealers hear it is masterminding the £150million flotation of Quantum Pharmaceuticals, a County Durham-based speciality drugs company. It is a fast-growing manufacturer and supplier of unlicensed medicines and special medical needs products. The City’s response to float plans have by all accounts been extremely bullish and shares should be oversubscribed.