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LONDON (Alliance News) - UK equities closed mixed Tuesday, with large- and mid-cap stocks outperforming their smaller peers to end the day in positive territory for the third trading day in a row, as individual company news took centre stage.

Following a four-day Easter break, London's major equity indices advanced strongly on the back of a raft of merger and acquisitions activity and speculation within the pharmaceuticals sector.

Blue-chip pharmaceuticals giant GlaxoSmithKline's shares jumped significantly, closing up 4.3%, after it announced a series of strategic deals with Switzerland's Novartis AG to create an expanded consumer healthcare and vaccines franchise and to exit its oncology portfolio.

Under a three-part deal, the group, which is the fourth biggest constituent of the FTSE 100 by market capitalisation, said that it will divest its marketed oncology portfolio to Novartis for an aggregate cash consideration of USD16 billion, of which up to USD1.5 billion will be dependent on the results of its COMBI-d trial. Moreover, it will acquire Novartis' global vaccines business, excluding influenza vaccines, for an initial cash consideration of USD5.25 billion, with subsequent potential milestone payments of up to USD1.8 billion and ongoing royalties.

Finally, the two companies also will create together a new consumer healthcare business with 2013 pro-forma revenues of GBP6.5 billion and with Glaxo having the majority control at 63.5%.

“Opportunities to build greater scale and combine high quality assets in vaccines and consumer healthcare are scarce," said Glaxo Chief Executive Officer Andrew Witty. "With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders," he added.

Glaxo estimates that the transaction would increase its annual revenue by GBP1.3 billion to GBP26.9 billion, on a 2013 pro-forma basis, and fundamentally re-shape its revenue mix.

At the same time, the firm said it will return GBP4 billion to shareholders which will be delivered by means of a B share scheme.

Further lifting the FTSE 100, AstraZeneca, also one of the ten largest companies in the index by market capitalisation, closed up 6.3%. The pharma's shares rose sharply following weekend reports by The Sunday Times that US giant Pfizer Inc made USD101 billion takeover offer, which AstraZeneca rejected.

Although the report said that no talks are currently underway after AstraZeneca resisted the approach, Pfizer could return with a better offer as it sits on a huge cash hoard in overseas subsidiaries that it could utilize for a major acquisition.

“After such a long time without the kind of mega-mergers seen in telecoms and utilities, the pharmaceutical sector is seeing a surge in speculation over who will be next,” said Jasper Lawler, market analyst at CMC Markets.

FTSE 100-listed Shire and FTSE 250-listed Hikma Pharmaceuticals ended the day up 5.5% and 5.0%, respectively, as they were boosted by the news.

Overall, the FTSE 350 pharmaceuticals and biotechnology sector closed up 5.3%, as the biggest gaining sector index.

FTSE 250-constituent Worldwide Healthcare Trust, which invests in pharmaceutical and biotechnology companies and related securities in the healthcare sector, benefited from the big rise in the sector, closing up 6.0%.

M&A talk in the pharmaceutical sector is rife at the moment. Novartis has agreed to sell its animal health business to US-based Eli Lilly for about USD5.4 billion, while Allergan Inc confirmed that it has received an unsolicited proposal from Canadian drug maker Valeant Pharmaceuticals International Inc to acquire all of the outstanding shares of the company.

It was a different story in the AIM All-Share index, however, where Quindell, the second largest company in the index by market cap, closed down 50%, weighing heavily on the index.

The company, which provides expertise in software, consultancy and technology, saw its shares fall off a cliff, pulling the AIM All-Share index into the red with it, following the publication of a research report that called into question most of the company's profits. Gotham City Research LLC said that it has been unable to reconcile between 42% and 80% of the firm's profits, saying that they are suspect as they are explained by sales to related parties owned and operated by Quindell Chief Executive Robert Terry.

Quindell's shares dropped to a new low for 2014 in the immediate aftermath of the report's release, before recovering somewhat after the firm rejected Gotham City Research's assertions. Quindell said the note was "highly defamatory, deliberately misrepresentative" and that it "entirely rejects the conclusions that are made".

The FTSE 100 closed up 0.9% at 6,681.76, ensuring that it ended the day in the black for the third consecutive trading day for the first time since February. The FTSE 250 also ended the day in positive territory for the third trading day in a row, closing up 1.1% at 16,082.24. The AIM All-Share index, however, closed down 0.8% at 823.02.

In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt closed up 1.1% and 2%, respectively.

On Wall Street, at the close of the UK equity market, the DJIA and S&P 500 were up around 0.5%, while the NASDAQ Composite was up 1%.

In other individual UK equity news, FTSE 250-constituent Colt Group ended the day as the mid-cap index's biggest loser, down 10%. The telecommunications company's shares plummeted after it lowered its forecasts for 2014 earnings before interest, tax, depreciation and amortisation due to compression of its profit margins.

The group said that it now expects its 2014 EBITDA, before restructuring costs, to be between 5% and 10% below current consensus estimates of EUR325 million. It said it also expects to post restructuring costs of EUR30 million in the second half as it continues to reorganise its operations into four units and announced plans to reduce its Carrier voice business.

Colt said it plans to withdraw from around 85% of its Carrier voice contracts, which involve the carrying of voice calls for other telecommunications providers, over the next few months to release around five billion minutes per year of voice network capacity.

Colt also released results for the first quarter to end-March. It posted revenue of EUR399.8 million, up from EUR392.1 million in the previous year, but EBITDA dropped to EUR74.1 million from EUR80.5 million, hit by compressed margins as the company changed its mix of products, saw continued price pressures in its bandwidth products, and felt the affect of declines in its Enterprise voice customers.

QinetiQ Group, closing down 1.9%, was another big faller in the FTSE 250. The company's shares fell sharply after its subsidiary, QinetiQ US Holdings Inc, revealed that it had entered into a conditional agreement to sell QinetiQ Group's US Services division for an initial USD165 million deal.

The agreement, which is set to complete in the second quarter of 2014, will see the US Services division sold to The SI Organisation Inc for an initial cash consideration of USD165 million plus a potential earnout of up to USD50 million in cash, following a market testing exercise that attracted a number of interested parties, said the firm.

Vedanta Resources, on the other hand, was a big riser, closing up 2.0%. The mining company announced that the Supreme Court in India has partially lifted the ban on mining in the state of Goa, where iron ore mining operations at its subsidiary Sesa Sterlite Ltd have been suspended since 2013.

With a dearth of macroeconomic data Tuesday, there was little movement in the forex market. At the close of the UK equity market, the pound continued to trade near a multi-year high against the dollar at USD1.6831, while also trading at EUR1.3803, CHF1.4896, and JPY172.640.

In a busier day in the data calendar Wednesday, the preliminary reading of Chinese HSBC manufacturing purchasing managers index for April is released at 0145 GMT. Preliminary French Markit manufacturing and services PMI data for April are released at 0700 GMT, ahead of preliminary German Markit manufacturing PMI for April at 0728 GMT, and preliminary German Markit services PMI for April at 0730 GMT. The equivalent readings for the wider eurozone are released at 0800 GMT.

The minutes from the latest Bank of England Monetary Policy Committee meeting, which will reveal the number of members who voted to leave the UK's interest rate unchanged, the number who wanted to raise it, and a number who wanted to lower it, are released at 0830 GMT. Public sector net borrowing information for March is released at the same time.

In the US, the Mortgage Bankers Association released its MBA mortgage applications data at 1100 GMT, ahead of the preliminary Markit manufacturing PMI for April at 1345 GMT. Home sales data are published at 1400 GMT.

In the corporate calendar, in the FTSE 100, Associated British Foods releases full-year results, ARM Holdings releases first-quarter results, and Sports Direct International, Reed Elsevier, and Hammerson are joined by FTSE 250 constituents AMEC, MoneySuperMarket.com Group and Spirent Communications in releasing trading updates. Mid-cap Fenner provides half-year results.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

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