LONDON MARKET COMMENT: Stocks End Mixed Despite Shell-BG Deal Buzz

LONDON (Alliance News) - UK stock indices closed mixed, with investors looking ahead to the release of the minutes from the latest US Federal Reserve policy meeting later Wednesday, while most of the attention during the trading session was on Royal Dutch Shell's takeover of fellow oil and gas company BG Group.

The two companies said they reached an agreement on a cash and shares takeover of BG by Shell, valuing BG at around GBP47 billion, making it the biggest UK-to-UK acquisition ever and prompting a rally across the oil and gas sector amid speculation it will spark a wave of industry consolidation.

Under the terms of the deal, BG shareholders will get 383 pence in cash plus 0.4454 of a Shell 'B' share per BG share. Based on the 90 trading day volume weighted average price of 2,170.3 pence per Shell 'B' Share on Tuesday, the total value of the deal is 1,350.00 pence per BG share.

BG Group shares closed up 27%, at 1,153.00p, the biggest FTSE 100 gainer, while Shell shares closed as the two worst blue-chip performers, with 'B' shares ending down 7.7% at 2,038.569p, and 'A' shares down 5.3% at 1,982.50p.

Augustin Eden, an analyst from Accendo Markets, said the deal "could mark the beginning of an M&A rave, much like the one we saw in the late 1990s where all manner of small oil and gas stocks were snapped up by larger ones – leading to the group of heavyweight oil majors we know so well today in the likes of Exxon Mobil, BP, Chevron, and the aforementioned Royal Dutch Shell."

"The recent oil price doldrums are making for tough waters to navigate for smaller firms such as Gulf Keystone Petroleum, Tullow Oil and their small-cap peers, and investors will be eyeing energy stocks closely this year," Eden added.

Shares in companies across the sector rose with BP, up 0.9%, ending as one of the biggest blue-chip gainers, while Ophir Energy, up 6.4%, and Tullow Oil, up 8.6%, were two of the best performing FTSE 250 stocks. Gulf Keystone ended up 2.3%.

Lewis Sturdy, a dealer with London Capital Group, says the deal could be an indication of the end of the recent fall in oil prices.

"Many will see the deal as marking the bottom of the energy price slump and encourage more investors back into these areas. Consolidation is a safer bet for commodity giants at a time when capex budgets have been slashed to cope with the falling profit margins created by the decimation in energy prices in the last year," Sturdy said.

Nevertheless oil prices fell further Wednesday after US EIA crude oil stocks came in much higher than expected in the week ending April 3. Crude oil stocks rose by 10.9 million barrels, sharper than the previous week's increase of 4.8 million, and much higher than the forecast of a 3.4 million barrel rise.

At the close of the London equity market, Brent oil was trading at USD56.95 a barrel and West Texas Intermediate was at USD51.55 a barrel.

The FTSE 100 closed down 0.4% at 6,937.41, having traded above the 7,000 mark once again in the first half of the trading session. The FTSE 250 maintained its gains, ending up 0.2% at 17,561.47, as did the AIM All-Share, closing up 0.4% at 725.52.

The CAC 40 in Paris ended down 0.3%, and the DAX 30 in Frankfurt closed down 0.7%. At the close of European stock markets, the DJIA and S&P 500 both were up 0.2%, and the Nasdaq Composite was up 0.7%.

Elsewhere on the London Stock Exchange, information services company Experian closed up 2.7% after Credit Suisse raised it to Outperform from Neutral, according to traders.

Aviva, down 2.1%, was one of the biggest blue-chip fallers after going ex-dividend, meaning new buyers no longer qualify for the latest dividend payouts. A host of companies are due to go ex-dividend on Thursday, including St James's Place, GlaxoSmithKline, and Rio Tinto.

The insurer also said Wednesday that it couldn't justify the cost of renewing its bancassurance deal with Singapore's DBS Bank Ltd, meaning the arrangement will come to an end, as the Singaporean bank partnered with Manulife Financial Corp's Manulife Financial Asia Ltd in a 15-year tie-up.

International Personal Finance closed as one of the worst performers in the FTSE 250, down 1.6%. The lender said it has had to withdraw its plans to raise money by issuing sterling-denominated 5.875% notes as a result of weak demand from investors.

Lansdowne Oil & Gas was one of the biggest gainers in the AIM All-Share index, up 24%. The company said it has launched a strategic review to consider all of its options which could lead to a potential merger, acquisition, sale or farm-out of its assets after receiving proposals. Lansdowne said it will discuss a potential merger on a confidential basis with a third-party under a formal sale process.

Still ahead, is the release of the Federal Reserve minutes at 1900 BST. The start of the US corporate earnings season also will be in focus, with aluminium producer Alcoa, traditionally the first to report, releasing its 2015 first-quarter results after the US market close.

In the economic calendar Thursday, there are German industrial production and trade reports at 0700 BST, ahead of UK trade data at 0930 BST. Later in the day the focus will be on the Bank of England's interest rate decision at 1200 BST. US weekly initial and continuing jobless claims are scheduled for 1330 BST.

The deadline for a Greek debt repayment to the International Monetary Fund also is on Thursday, even as a deal to secure funding from eurozone creditors appears weeks away.

In the corporate calendar, there are full-year results from interactive gaming company NetPlayTV, a fourth quarter trading statement from food producer Cranswick and an interim management statement from consumer products company PZ Cussons. There also are trading updates from bonding materials supplier Scapa Group, high-performance polymer company Victrex and UK Mail Group

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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