LONDON MARKET OPEN: Melrose Shares Jump After Buying US's Nortek

LONDON (Alliance News) - Stocks in London were mixed Wednesday morning, with recent patterns repeating as the FTSE 100 of large-caps opened higher while the more UK-exposed FTSE 250 headed the other way. Outside either index, shares in Melrose Industries jumped after buying US manufacturing company Nortek.

Melrose shares jumped by a quarter after saying it has agreed a USD1.44 billion deal to acquire Nortek and will launch a rights issue of shares to finance the deal. Melrose operates a 'buy, improve, sell' model, by which it acquires underperforming industrial businesses, restructures and returns them to health, and then sells them on.

Melrose said it will acquire Providence, Rhode Island-based Nortek for USD86.00 per share, a 38% premium to Nortek's closing price on NASDAQ in New York on Tuesday. Melrose said its offer already has support of shareholders representing 68.7% of Nortek, as well as the unanimous support of the Nortek board.

Melrose will finance the deal with a fully-underwritten rights issue of 12 new shares at 95.00 pence per share for each 1 existing share, raising a total of GBP1.61 billion. Melrose said it has held pre-marketing meetings with a number of its institutional shareholders who it believes are supportive of the acquisition.

The FTSE 100 was up 0.4%, or 24.85 points, at 6,570.22. The FTSE 250 was down 0.2% at 15,702.83, while the AIM All-Share was up 0.1% at 705.60.

The pound hit a new 31-year low of USD1.2798 overnight, in spite of the efforts by the Bank of England to prop up investor confidence with new measures to help boost lending, as it warned of a "challenging" outlook for financial stability after the Brexit vote.

The BoE will reduce the capital required to be held on banks' balance sheets by GBP5.7 billion, which it said would help bolster their ability to lend to households and businesses by up to GBP150 billion. The so-called countercyclical capital buffer rate has been slashed to zero from 0.5% and will remain at that level for at least a year, the central bank said.

Sterling recovered some ground but was still below USD1.30 after the London equities open, quoted at USD1.2962.

In Asia on Wednesday, the Japanese Nikkei 225 index closed down 1.9%. In China, the Shanghai Composite clung onto gains, ending up 0.3%, but the Hang Seng index in Hong Kong continues down 1.8%.

In Europe, the CAC 40 index in Paris was down 0.8% and the DAX 30 in Frankfurt down 0.6%.

UK shop prices declined at a faster pace in June, the British Retail Consortium said. Shop prices decreased 2% in June from a year ago, which was bigger than May's 1.8% decline. Food prices slid 0.8% annually, the largest decrease in more than a year. The survey was conducted between June 6 and 10, ahead of Britons voted to leave the EU.

Economic calendar highlights are the US Redbook index at 1355 BST, and US Markit services and composite PMI readings at 1445 BST. The US Federal Reserve will release the minutes of its last monetary policy meeting at 1900 BST.

Elsewhere among UK equities, gold miners Fresnillo and Randgold Resources were up 4.6% and 3.3%, respectively, tracking the precious metal's price. Gold was quoted at USD1,366.16 an ounce shortly after the equities open, compared to USD1,349.32 an ounce late Tuesday.

Wm Morrison Supermarkets was the worst blue-chip performer, down 6.0%, after HSBC cut the supermarket chain to Reduce from Hold. HSBC also cut Tesco to Hold from Buy, sending the stock 4.2% lower.

Easyjet was down 2.5% despite the budget airline said both the number of passengers carried and its load factor rose in June year-on-year. Passenger numbers increased by 5.8% in June to 6.9 million from 6.6 million in the same month the year before, while load factor grew by 1.4 percentage points to 94.1% from 92.7%.

On a rolling 12-month basis, passenger numbers rose by 7.1% to 71.9 million from 67.1 million, and load factor was up 0.3 percentage point to 91.5% from 91.2%. easyJet said there were 852 cancellations in June compared with 487 in June 2015.

By Daniel Ruiz; danielruiz@alliancenews.com

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