News Column

Takeover speculation boosts share index

May 30, 2014

BRITAIN'S top share index advanced to trade near a 14-year high yesterday, with takeover speculation surrounding companies such as Smith & Nephew and Weir Group lifting investors' appetite for riskier assets.

The FTSE 100 index finished 0.3 per cent higher at 6,871.29 points, outperforming slightly lower benchmark indexes in France, Germany, Italy and Spain. Trading volumes were just 39 per cent of the index's 90-day daily average because of a public holiday in many countries.

The index ended just below the 14-year high scaled this month and was less than 2 per cent away from a record peak set in 1999.

Analysts said the positive momentum following mergers and acquisitions (M&A) talks could help the index to set a new record high in the near term.

"The improving economic backdrop and the pick- up in business confidence are likely to be supportive for a pick-up in M&A activity," said Robert Parkes, equity strategist at HSBC. "In addition, valuations are not stretched and there appears to be an element of pent up demand as a result of the depressed level of deal activity in recent years."

Medical-devices manufacturer Smith & Nephew was the top performer in the FTSE 100 index, up 3.6 per cent, extending Wednesday's gains after a press report of a planned takeover bid from US rival Stryker.

Although Stryker denied it was planning a bid, traders said the return of takeover speculation would continue to support S&N shares in particular and the broader market in general.

Engineering firm Weir Group gained 1 per cent a day after it abandoned efforts to acquire rival Metso. The Finnish company had rejected Weir's second, improved takeover bid.

Bankers have said a failure to merge with Metso could make Weir, already frequently the subject of takeover speculation, a target for big players such as General Electric or Honeywell that are keen to access the Glasgow-based company's lucrative position in US shale. Merger news also spread to hedge-fund managers, with mid-cap Man Group gain 5 per cent after confirming it was in talks to buy US firm Numeric Holdings. But some disappointment on the earnings front countered the M&A froth in the market.

Kingfisher, Europe's biggest home improvement retailer, fell 4.9 per cent, the top decliner in the FTSE 100, even though the group reported a 20 per cent rise in first quarter retail profit and said it would pay a pound(s)100 million special dividend.

Despite gains in the broader market, some analysts advise caution. "If you look back at most stock-market cycle highs, you'll see a raft of IPO's and M&A activity typically signalling the top of the market," Michael Jarman, head of equity strategy at H2O Markets, said. "I'm not suggesting we are at the top right now, but I believe investors should start to look at this flurry of M&A activity and IPO listings as a warning."


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Source: Herald, The (Scotland)


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