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LONDON (Alliance News) - The UK's blue-chip index closed modestly higher Monday, outperforming its smaller peers, after its sixth-largest constituent by market capitalisation, AstraZeneca, rose sharply after US drugs giant Pfizer Inc confirmed that it has now twice approached its British rival with a takeover proposal.
The FTSE 100 jumped at the open Monday as AstraZeneca's shares rocketed. In a statement, Pfizer said it had approached the pharmaceutical firm on January 5 with a cash and shares offer that valued the British company's shares at GBP46.61, or USD76.62, each, and then contacted it again on Saturday in the hope the sides could come up with a takeover proposal that both companies would put to their shareholders, but AstraZeneca again declined to engage with the US company.
"As in its previous proposal, Pfizer is considering a possible transaction in which AstraZeneca shareholders would receive a significant premium for their AstraZeneca shares, to be paid in a combination of cash and shares in the combined entity," Pfizer said.
It said it would be offering a "significant" premium to AstraZeneca's share price on April 17 and a substantial cash payment if it does go ahead with an offer. AstraZeneca's shares closed at 3,779 pence that day, and have closed up 15% at 4,685.062 pence Monday, making it the biggest gainer on the FTSE 100.
Separately, AstraZeneca has advised its shareholders to take no action, and said that it considered the offer made by Pfizer in January had "significantly undervalued" its business and prospects. It said it hadn't entered talks this weekend because there was no specific, attractive proposal from Pfizer.
However, the possibility of a bumper buy-out has now seen the AstraZeneca share price rise by more than 20% since the start of trading last week. According to takeover rules, Pfizer has until May 26 to make its move or declare its intention not to bid.
The sharp increase in AstraZeneca's shares saw the FTSE 350 pharmaceuticals sector close up 5%.
Moreover, "with all of this M&A talk, investors are looking for other potentially attractive companies that could become the next big acquisition story," said Craig Erlam, market analyst at Alpari.
Pharmaceuticals company Shire and medical equipment manufacturer Smith & Nephew closed up 2.4% and 1.1%, respectively, boosted by the ongoing merger and acquisition speculation.
"The number of significant earnings and economic data released today has been light so aside from ongoing M&A discussions, stocks have had little data to move off," said Jasper Lawler, market analyst at CMC Markets.
The blue-chip index did dip slightly shortly before the US open as its second largest constituent by market cap, BP, fell heavily after the US and EU imposed a new round of sanctions against Russian individuals and companies as part of the ongoing Ukraine crisis.
Among those on the US sanctions list is Igor Sechin, the head of the state-run major oil company Rosneft. This news is particularly bad for BP, which owns 19.75% of Rosneft's shares under a deal reached in 2012.
A spokesman for BP said on Monday that the company is, "committed to our investment in Rosneft, and we intend to remain a successful, long term investor in Russia. We are considering today’s announcement to see specifically what this may mean for BP. We will of course comply with all relevant sanctions."
BP's shares fell to a multi-day low in the immediate aftermath of the announcements, before recovering somewhat to close the day down 1%.
However, the FTSE 100 eventually regained some of its strength to close up 0.2% at 6,700.16, while, the FTSE 250 closed down 0.4% at 15,826.24, and the AIM All-Share index closed down 0.8% at 812.63.
"I think you could probably argue that most of today’s blue-chip rally is being driven by M&A induced buying and some relief that the latest round sanctions announced today by G7 leaders weren’t as punitive as first feared. Investors could also be looking at other potential candidates for possible acquisition interest," said CMC Markets chief market analyst Michael Hewson.
In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed up 0.4% and 0.5%, respectively.
In the US, Wall Street trades mixed. At the close of the European equity markets, the NASDAQ Composite is down 0.7%, the S&P 500 is down 0.1%, while the DJIA is up 0.2%.
In other individual UK stock news, Reckitt Benckiser Group was a big blue-chip loser, ending the day down 2.3%, after reports surfaced that US pharmaceutical company Merck & Co. Inc is in final discussions to sell its consumer healthcare unit. The reports said that UK-based consumer goods company Reckitt and German conglomerate Bayer AG each offered approximately USD14 billion for the unit, while Swiss drug giant Novartis AG and the US consumer goods company Procter & Gamble Co are said to have interest as well. Since the close of the UK equity market, Reckitt has confirmed the discussions.
In the FTSE 250, Al Noor Hospitals Group closed up 4.2%, making it the index's biggest risers. Shares in the company jumped after it expressed confidence in meeting expectations for the 2014 full-year, following a strong start to the year. The Abu Dhabi private healthcare provider posted revenue of USD111.6 million in the first quarter to the end of March, up from the USD89.5 million posted in the previous year.
The company said it had a headcount of 502 revenue-generating physicians at the end of the quarter, up from 470 at the end of 2013, boosted by four additions from its acquisition of the Gulf International Cancer Center, and said it remained confident of meeting its goal to hire a total of 70 to 80 additional physicians during 2014.
In the forex market, both the pound and the euro strengthened against the dollar Monday, with sterling reaching its highest level since November 2009 in early trading, at USD1.6858.
"Looking ahead, M&A activity could be the key driver for sterling upside in the longer term," said Kathleen Brooks, research director at Forex.com. "In the short term, comments from Astra Zeneca are worth watching; if it sounds hesitant about the Pfizer deal then sterling could come under pressure," she adds.
Meanwhile, "Tuesday’s gross domestic product data is also crucial. A number above 1% could boost sterling, while a data miss could trigger some weakness," Brooks said.
The preliminary reading of UK first-quarter GDP is released at 0830 GMT, with economists' expectations for a quarter-on-quarter rise of 0.9% in the first quarter.
At the closed of the UK equity market, the pound trades at USD1.6811, while the euro trades at USD1.3845.
In the data calendar Tuesday, French consumer data for April is released at 0645 GMT. Italian retail sales and business confidence information for February are published at 0800 GMT and 0900 GMT, respectively. The preliminary reading of German consumer price inflation for April is scheduled at 1200 GMT.
In the US, Standard & Poor's publishes S&P/Case-Shiller home price data for February at 1300 GMT, with the latest reading of consumer confidence at 1400 GMT.
In the corporate calendar, FTSE 100-listed St. James's Place is joined by FTSE 250-listed UBM, Essentra, Carphone Warehouse Group, Jardine Thompson Group, Foreign & Colonial Investment Trust, Telecity Group, Redrow, and Stagecoach Group, amongst others, in releasing trading updates.
Blue-chip BP releases first-quarter results.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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