Elementis hit a record high on Thursday and, inevitably, it was bid speculation to put it there.
According to Exane BNP Paribas, the proposed merger of Lafarge and Holcim suggests M&A activity is finally picking up, which makes chemicals maker Elementis a consolidation target.
“That two cement companies should attempt a consolidation in an industry that is already a regulator’s bête noire indicates just how pressing the need to do such deals has become,” Exane analyst David Finch said.
“In an environment of sluggish global growth where many companies have already restructured aggressively M&A is one of the few avenues available for further cost-cutting, synergy extraction and market rationalisation. We suspect that the first stage of the M&A cycle that was characterised by lower risk bolt-on deals is coming to an end and that we can now start to anticipate some larger scale, riskier industry consolidations.”
Rumours that Elementis was attracting predators have been around since the mid 1990s though the company has only once admitted to approaches, in 2000. Potential buyers may have been deterred by the group’s highly cyclical Chromium business, which makes coating pigments and accounts for about a third of group earnings.
But restructuring has turned Chromium into a more stable and cash generative business, which makes a deal appear more palatable, said analysts.
“Dow and BASF (through Ciba) appear the most likely acquirers,” Exane said. “Both clearly have the balance sheets to acquire Elementis in cash. Both companies are also known to be seeking to reduce cyclicality by increasing exposure to downstream niches with more resilient margins.”
Elementis closed up 4.2 per cent at 289.6p, also helped by Jefferies raising its target price to 314p.
A quiet wider market left the FTSE 100 up 6.36 points at 6,641.97.
Marks and Spencer led the FTSE fallers, down 3.1 per cent to 442p. The stock had initially rallied as high as 471p on better than feared clothes sales, then reversed after management detailed margin pressure and the benefit of a lower than expected depreciation charge.
A day after gaining the right to bid again on UK state contracts, G4S fell 0.9 per cent to 247.2p. HSBC, which cut G4S to “underweight”, said the shares had already priced in “an imminent recovery” in G4S’s developed markets that relied more on “fundamental market economics than internal tinkering”.
Ocado fell 3.1 per cent to 391.7p on a report that the grocery delivery group may be two years away from agreeing any partnership deals with international retailers. The story echoed recent rumours that early take-up of its UK partnership with Wm Morrison had been slower than hoped.
Morrison itself lost 2.3 per cent to 197.3p amid talk of growing shareholder pressure on Sir Ian Gibson, who has been its chairman since 2008.
Land Securities led the blue-chip risers, up 2.9 per cent to £10.45, while British Land rose 1.1 per cent to 668p and Great Portland Estates added 1.8 per cent to 643.5p. An early UK interest rate rise was “no great threat to UK property shares”, contrary to received wisdom, said Deutsche Bank. More important was nominal rental growth, which better correlated with economic growth and inflation, it said.
Get alerts on UK equities when a new story is published