LONDON (Alliance News) - London share prices are flat to lower Monday mid-morning, with Diageo leading FTSE 100 gainers and Shire and GKN amongst its biggest losers, all moving on takeover speculation.
Investors are still digesting the improvement in US nonfarm payrolls reported on Friday which some analysts say could drive the Federal Reserve to a raise US interest rates in September or October, while in the background remains the debt negotiations between Greece and its international creditors.
The FTSE 100 is down 0.1% at 6,801.11, and the FTSE 250 is down 0.1% at 17,922,46, while the AIM All-Share is flat at 775.38.
European indices are lower, with both the CAC 40 in Paris and the DAX 30 in Frankfurt down 0.2%.
Diageo shares are up 6.8% at 1,880.00 pence, by far the best performer in the blue-chip index, amid reports in the press on Friday that suggested Brazil's richest man, Jorge Paulo Lemann, is weighing a takeover bid for the drinks company. The Times, The Telegraph and Bloomberg all cited a report from columnist Lauro Jardim of Brazilian publication Veja that Lemann, who founded private equity firm 3G Capital, is in the early stages of preparing a potential offer for Diageo.
Shore Capital, however, is not confident that any sort of deal will transpire. "As to how likely a bid might be for Diageo, it is difficult say," says Phil Carroll, an analyst at the brokerage. "We would have thought that through its ownership of AB InBev, a bid for SABMiller is more likely especially given the greater level of potential synergies on offer," the analyst adds.
"In summary, we expect Diageo shares to be strong today, but we do not expect 3G to make a bid for the company," Carroll says.
Also Monday, Diageo was upgraded by JPMorgan to Neutral from Underweight with its price target lifted to 1,900p from 1,700p.
Meanwhile, Shire, down 1.4%, is understood to be preparing a GBP12 billion offer for Swiss peer Actelion, The Sunday Times reported citing market sources who said Actelion was an "obvious target" for the British drugs specialist.
However, Shire could have a battle on its hands, The Times said, as Actelion is understood to have rebuffed an informal approach a few weeks ago. Shire may have to offer a sizeable premium. Shire and Actelion told The Sunday Times that they didn't comment on market rumours.
Also hit by an article in the The Sunday Times are shares of GKN, which are down 1.6%. Airbus is considering throwing open GKN?s multimillion pound contract to supply parts for the A320 aircraft in a row over cost-cuts, the newspaper reported without saying where it got the information.
The European aerospace giant is believed to be considering inviting other suppliers to pitch for GKN?s work on the short-haul workhorse as it attempts to transform the meagre profit margins it makes on planes by demanding cost-cuts from suppliers, The Times said.
Meanwhile, BT Group shares are up 0.9% as it is set to become a takeover target for Germany's Deutsche Telekom according to senior industry executives and city analysts, the Telegraph reported Sunday.
Deutsche Telekom is reportedly in talks to merge its American arm, T-Mobile US, with satellite pay TV operator Dish Networks. If a deal is struck, the sources claim, the likelihood of a potential takeover of BT will rise, as this could be a route for Deutsche Telekom to exit the American market. It could then look to redeploy funds in Europe.
Outside corporate news, investors will take a look at US labour conditions data due to be released at 1500 BST, as it comes after Friday's better-than-expected nonfarm payrolls data, while US Treasury bond yields are higher.
"The [nonfarm payrolls] report will now stoke up the debate over the possibility of an October or even September rate hike [from the Fed]," says Hantec Markets analyst Richard Perry. "Equity markets are in a bit of a quandary now, as the yields on Treasuries continue to push higher and the concerns over the shock of a potential rate hike hold back some of the buyers."
The pound hasn't recovered from Friday's losses against the dollar and currently trades at USD1.5235.
US futures point to a flat to lower opening, with the DJIA pointed down flat, while the S&P 500 and the Nasdaq Composite are seen down 0.1%.
In Europe, European Commission President Jean-Claude Juncker rejected a phone call Saturday from Greek Prime Minister Alexis Tsipras asking for a new round of talks on Athens' deepening debt crisis, but that does not mean the matter won't weigh on the G7 summit of the world's major economies taking place Bavaria.
Juncker turned down Tsipras' request, saying that there had been no new developments in the crisis, which threatens to result in cash-strapped Greece defaulting, according to dpa information.
German Chancellor Angela Merkel and French President Francois Hollande spoke by telephone with Tsipras on Saturday, and the three leaders agreed to meet on Wednesday evening in Brussels, government officials in Athens said. Eurogroup President Jeroen Dijsselbloem and Juncker also will join the meeting.
By Daniel Ruiz; danielruiz@alliancenews.com
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Diageo (DGE)
BT (BT.A)
