The long-standing rumours of take-out of J Sainsbury swept through London dealing rooms again yesterday, helping to prop up the wider market.
Sainsbury shares rose 2.7 per cent to 302p as rumours spread of a management-led buyout at 325p to 350p per share for the supermarket retailer. Trading was heavy with 27.7m shares changing hands, more than double the 12.6m average daily volumes this year.
“Every spiv and maverick in the land seems to have sniffed something” said David Buik of Cantor Index, the spread betting company.
He said daily trading volumes had increased strongly since January 26 when market rumours suggested Alan Leighton and Archie Norman would link with a private equity company to mount a bid. This time around the rumours were of a management-led buyout. However, Mr Buik added: “If a genuine takeover or MBO was in the air, the share price would have moved 10 per cent and not 2-3 per cent.”
Overall, the FTSE 100 closed 0.1 per cent higher at 5,057.4 while the mid-caps once again trailed with FTSE 250 gaining just 1.1 points to 7,301.1. Trading volumes was again moderate at 2.7bn.
Strength in the media and oil sector helped the FTSE advance in morning trade. But a 24 point gain quickly evaporated after disappointing US economic data and a weak start on Wall Street. One dealer said the FTSE was technically challenged at these levels and appeared overbought.
The recent pick-up in M&A activty has been concentrated in the mid-cap sector pushing the the FTSE 250 to an all time high and leaving the large cap index trailing. However, Kevin Gardiner, equity strategist at HSBC said he expected large-caps to take a bigger slice of the M&A pie going forward.
Sainsbury was one of the FTSE 100 companies identified by HSBC as potential targets and other included MMO2, BOC and Man Group.
In the FTSE 250, HSBC pointed to EasyJet, JJB Sports, Northumbrian Water, Amec, BBA, British Vita, MFI and Geest.
The mobile operator MMO2 advanced 3.4 per cent to 129.75p as the potential valuation of its German business was helped by a rumoured 1.25bn bid for Wind, Italy’s third largest mobile base and also by comments from T-Mobile that prepay subsidies in Germany could fall sharply.
“The key to real upside in the MMO2 share price to 140p and beyond will principally come from investors re-appraising what the German business is worth and this is further evidence” said Christian Maher of Investec.
Vodafone added 0.5 per cent at 141.25p after analysts at Bear Stearns said there was room for dividend payout to be increased from the relatively small 26.7 per cent of cashflow this year.
Reed Elsevier led the FTSE 100 with a gain of 7.5 per cent to 533.5p as the Anglo-Dutch publisher announced better-than expected full year results and expressed confidence that 2005 would bring further recovery in its markets. Lex Live on Reed Elsevier
Pearson, the owner of the Financial Times, rose 2.2 per cent to 662p, boosted by Reed’s positive comments on the US education sector.
Euromoney Insitutional Investor led the FTSE 250 with a rise of 9.1 per cent to 481.5p after Reed said the business to business sector was seeing higher investment which was also feeding through into advertising, search and exhibition demand. This helped Centaur, 1 per cent higher at 99.5p.
“B2B is the most attractive sub-sector of the media sector for 2005,” said the media team at Numis Securities.
Upbeat comments on scientific publishing were seen as a good omen for T&F Informa, up 2.4 per cent at 425p.
Diageo lost 0.7 per cent to 740p as the drinks group said adverse exchange rate movements would wipe £80m off pre-tax profits in 2005 and 2006. Diageo also reported a 5 per cent fall in underlying first-half profits to £1.25bn, broadly in-line with analysts’ expectations. See more on Diageo and also Lex live on Diageo
Kingfisher lost 2.4 per cent to 295p after a its fouth quarter sales update showed a disappointing decline in like-for-like sales at both the B&Q home improvement chain and Castorma, its French operation. See more on Kingfisher
Cairn Energy rose 6 per cent to £11.30 as investors focused on the positives from a mixed update from its drilling programme in Rajasthan in India. See more on Cairn Energy
BHP Billiton rose 1 per cent to 725p and Anglo American gained 1.1 per cent at £13.40 after the mining companies sold their 60/40 joint venture in Samancor Chrome, one of the largest producers of ferrochrome in the world, to the Kermas Group for US$469m. See more on Samancor deal
Standard Chartered fell 1.2 per cent to 983p after ABN Amro said buying the bank’s shares at such an inflated valuation demanded a high level of merger conviction. ABN recommended a switch into Royal Bank of Scotland, up 0.4 per cent at £18.17, and HBOS, off 0.3 per cent at 873p, as their earnings growth and valuations were more attractive. See more on Standard Chartered
Royal & Sun Alliance rose 1.7 per cent to 87.5p after the insurance company said it would increase reserves for its discontinued US business by £160m. The move had been flagged in November and there was relief that the increase was not larger.
Pendragon revved 7.4 per cent to 313p after the car dealership chain reported better-than-expected pre-tax profits for 2004.
Cambridge Silicon Radio rose 6.9 per cent to 356p as the bluetooth chip provider recovered from a fall on Wednesday prompted by weaker than-expected guidance for first quarter sales.
Credit Suisse First Boston said Wednesday’s share price reaction was overdone and noted CSR’s fundamentally solid position. CSFB reiterated its “outperform” recommendation but revised its price target to 350p from 400p previously.
Luminar fell 2.4 per cent to 541.5p as the nighclub operator announced the departure of its finance director Andrew Burns.
Among the smaller companies, Elementis, the chemicals group, recovered from early falls to finish 11.2 per cent higher 47.25p as investors overlooked expected weak full-year earnings to concentrate on the coming year. Elementis said 2004 pre-tax profit fell 60 per cent on high energy costs and extreme weather conditions. KBC Peel Hunt lifted its full-year earnings per share numbers in both 2005 and 2006 by around 20 per cent. However, KBC pointed out that half the upgrade was due to changes in tax rates and its estimates remained at the lower end of expectations.
Floors 2 Go, the specialist floor seller, also recovered from initial losses inflicted by news of soft flooring sales at DIY chain B&Q, part of Kingfisher. Traders pointed out that B&Q’s weak figures could possibly be attributed to Floors 2 Go, as the latter often set up next to B&Q to attract customers, and could compete on price and range. The group is currently the subject of a takeover approach, rumoured to be venture capital firm Apax Partners. The price has been rumoured to be as much as 110p per share, with other interested parties waiting in the background should the talks fail. The shares rose 1.1 per cent to 93.5p.
Sinclair Pharma was up 2.2 per cent at 139.5p after it announced a deal with Sunstar Suisse to distribute Aloclair, its mouth ulcer treatment to a further eight countries in Europe. There was also talk it could announce a US deal next week.
Ringprop, the marine machinery group, lost 17.3 per cent to 213p as it confirmed it was finalising a placing at a substantial discount to its current market price, which was around 230p when the announcement was made.
Wilshaw was unchanged at 9p after entrepreneur Iraj Parvizi raised his stake in the cash shell to 29 per cent through the acquisition of 750,000 shares. Wilshaw has £3.2m in cash and assets and has previously stated it is on the lookout for acquisitions.
Nutrinnovator Holdings, the specialist food maker behind Altu nutrition bars, was unchanged at 50.5p amid talk it could buy Provexis, a unit of Angle, the intellectual property and technology commercialisation group. Provexis has developed CardioFlow, a tomato extract that can reduce the tendency for excessive blood clotting.
More than 5.7m shares were traded in Oxford Biomedica, the pharmaceutical group which ended takeover talks with an unnamed party earlier this month. Rumours said it could shortly announce a deal to licence out further development of TroVax, its cancer vaccine. The shares were unchanged at 20p.
ML Labs, the pharmaceutical group, was unchanged at 19.25p on vague talk of a board reshuffle. The stock has risen 11 per cent in the last few days as a large shareholder cleared out of his position in the stock.
Sumus, the Independent Financial Adviser group, rose 10 per cent to 44p as it debuted on Aim.
Scotty Group rose 12.2 per cent to 3.5p as it won two contracts from the Royal Navy for 12 mobile systems, which send ship to shore encrypted messages.