Taylor Wimpey Share News (TW.)

LONDON (Alliance News) - The FTSE 100 closed higher Friday, having spent the day trading within a relatively tight range, with UK holiday operator TUI Travel ending the day as the biggest gainer in the blue-chip index.

TUI Travel, the owner of Thomson and First Choice, saw its shares rise sharply after it said it had agreed to merge with its parent company TUI AG, ending years of speculation about such a buyout.

"Its always been a compelling logic to bring the two businesses together," Peter Long, chief executive of TUI Travel said Friday.

TUI Travel said that the possible all-share, nil-premium merger, would deliver a number of strategic and financial benefits, including potential cost savings of at least EUR45 million per year, largely because there will be no duplication of head offices. The combined company would be headquartered in Germany, but would be listed on the London Stock Exchange, where TUI Travel is already a FTSE 100 constituent, in parallel with a German listing.

TUI Travel has a market value of GBP4.56 billion, while TUI AG has a market capitalisation of around EUR3.27 billion, giving the combined firm a market value of around EUR5.8 billion, at current prices.

That makes the deal worth approximately GBP2 billion, as TUI AG is the biggest shareholder in TUI Travel, already holding a 54.5% stake.

Under the terms of the deal being discussed, TUI Travel shareholders would receive 0.399 new TUI AG share for each TUI Travel share they own.

TUI Travel, closing up 3.9%, ended the day as the biggest riser in the FTSE 100 Friday.

Overall, the FTSE 100 closed up 0.3% at 6,757.77, the FTSE 250 closed up 0.2% at 15,681.46, while the AIM All-Share index closed up 0.2% at 782.04.

Despite Friday's modest gains, the three indices closed firmly lower for the week, as they struggled to recover from heavy losses posted at the beginning of the week, following a much weaker-than-expected final reading of US first quarter GDP, a disappointing round of eurozone purchasing managers' index data, and escalating violence in Iraq.

The UK's blue-chip index closed down 1% for the week, while the FTSE 250 closed down 0.7% for the week, and the AIM All-Share index closed down 0.4% for the week.

On the continent, the CAC 40 in Paris closed down 0.1% on Friday, and down 2.3% for the week, while the DAX 30 in Frankfurt closed up 0.1% Friday, but down 1.7% for the week.

"It’s been a fairly lacklustre session in Europe today with shares struggling for direction, with little in the way of drivers one way or the other," said Michael Hewson, chief market analyst at CMC Markets.

UK first quarter GDP data came in largely as expected Friday.

The UK Office for National Statistics revealed that the UK economy expanded as estimated in the first quarter. Gross domestic product grew 0.8% quarter-on-quarter, unrevised from previous preliminary estimates. Annual growth, however, came in at 3.0%, slightly lower than the preliminary estimate of 3.1%.

Nevertheless, "this is still encouraging," said Craig Erlam, a market analyst at Alpari.

"A small downward revision for yearly UK growth was mostly ignored, with a rise in business investment helping to keep sterling supported versus the dollar," said Chris Beauchamp, a market analyst at IG.

UK business investment rose 5% quarter-on-quarter, or GBP1.6 billion, to GBP33.4 billion in the first three months of the year. Economists had been expecting a more modest increase of 2.7%.

At the same time, the ONS revealed that the UK current account deficit narrowed to GBP18.50 billion in the first quarter from a revised GBP23.52 billion in the fourth quarter. Economists had forecast that it would narrow to GBP17.5 billion from GBP22.4 billion.

In the forex market, at the UK equity market close, the pound trades at USD1.7016, EUR1.2481, JPY172.521, and CHF1.5177.

At the individual UK equity level, and away from TUI Travel, Rolls-Royce Holdings, closing up 2.2%, was one of the biggest risers in the FTSE 100 Friday. Shares in the company rose after Reuters reported that Airbus is very close to a decision to upgrade its A330 with engines provided by Rolls-Royce, citing people familiar with the matter.

The move will strengthen a growing strategic pairing between the European companies, with General Electric Co, the main alternative engine supplier on the existing version of the jet, no longer seen as a contender to take part in the USD2 billion project provisionally dubbed "A330neo," Reuters quoted the people as saying. The go-ahead to make Rolls-Royce sole supplier for the new version of the A330, offering up to 14%-15% in fuel savings with the help of new wingtips, remains subject to Airbus board approval, Reuters added.

It was another good day for stocks related to the housing sector Friday, following a sharp rise on Thursday.

The companies rose for a second day after the Bank of England made only very limited new recommendations to control the buoyant UK housing market on Thursday, saying that household indebtedness currently poses no imminent threat to the country's economic stability.

"Mark Carney’s attempts to cool the housing market have been labelled toothless," said Kathleen Brooks, research director at Forex.com. "The homebuilders were expecting draconian measures, what they got was a tap on the hand, and relief rally has continued to gain momentum on Friday," she said.

FTSE 100-constituents Barratt Developments and Persimmon closed up 3.2% and 1.5%, respectively, while FTSE 250-listed Foxtons Group closed 6.8% higher, Redrow closed up 5.5%, Taylor Wimpey closed up 3%, Berkeley Group Holdings closed up 2.7% and Galliford Try closed up 2.2%

National Express Group, closing up 3.6%, was another stand out gainer in the FTSE 250. The company has retained its c2c Essex Thameside rail franchise for a further 15 years, after committing to investments of GBP160 million in new trains, more peak-time services, station improvements, and adding free wifi on trains and at stations.

In a statement, the UK government's Department for Transport said the new franchise will run until November 2029, and the award reflected c2c's "impressive" performance on the franchise so far.

SuperGroup closed up 2.4%. Shares in the fashion retailer jumped after it took back the rights to trading its Superdry brand in Denmark, Norway and Finland when it bought Scandinavian distributor SMAC Group. It didn't provide any financial details about the acquisition, but said it paid for the deal with cash from internal resources.

"The acquisition of the distribution rights will assist the group in meeting its ambitious plans for the region, by freeing it to invest its own capital in the store roll-out, improve margins on the wholesale operation and retain local operational and management expertise," SuperGroup said in a statement.

At the other end of the spectrum, Imagination Technologies Group was the FTSE 250's biggest faller, closing down 8.7%. The company's share price fell sharply after Intel Capital Corp, the investment arm of chip giant Intel Corp, sold a 9.3% stake in the business, a move its banks said wouldn't impact the operational relationship the companies have.

Credit Suisse, which along with Jefferies International and JP Morgan, conducted the sale by Imagination Tech's biggest shareholder, said Intel Capital will be subject to a 90-day lockup on its remaining Imagination Technologies stake of about 5%.

In total, 25 million shares were placed by the banks at 205 pence a share, raising gross proceeds of GBP51.25 million. The sale was done through an accelerated book build, meaning little or no marketing was done.

In the data calendar Monday, the preliminary reading of Japanese industrial production is released at 0050 BST, ahead of Japanese housing data at 0600 BST. UK mortgage approvals information and net lending to individuals data are published 0930 BST, ahead of eurozone and Italian consumer price inflation data at 1000 BST.

In the US, the Chicago purchasing managers' index is released at 1445 BST, with home sales data shortly after at 1500 BST. The Dallas Fed manufacturing index is released at 1530 BST.

In the corporate calendar, AIM All-Share index-listed Daily Internet releases full-year results.


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

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