February 2, 2008

M&A activity sparks FTSE rally

London equities made strong gains on Friday, as fresh bid activity energerised the mining sector and Wall Street took off after Microsoft made an offer for Yahoo.

The FTSE 100 closed 2.5 per cent higher at 6,029.2, a rise of 149 points. The benchmark index shrugged off worse-than-expected US job creation data, with the spell of dealmaking helping it remain positive.

The FTSE 250 gained 3.1 per cent on the day to close at 10,186.6.

Rio Tinto rose 13 per cent to £57.10 after Chalco of China joined forces with US aluminium smelter Alcoa and took a 12 per cent stake in the miner ahead of the February 6 deadline for a full bid from peer BHP Billiton (NYSE:BHP).

The new consortium, called Shining Prospect, is reported to have paid £60 per share for the stake, above Rio's year-high of £59.30.

It said it did not intend to make a full offer for Rio at the moment, but reserved the right to do so in future. It also said it could participate in another bid for the company.

That helped shares in Rio's existing suitor BHP Billiton to a 9.8 per cent rise at £16.25. BHP has until next Wednesday to lodge an offer for Rio after its initial overtures were rebuffed by Rio's board.

The news, discussed in detail on FT Alphaville's Markets Live, re-stoked hopes for a round of consolidation in the heavily-weighted sector and sent its constituents racing higher.

Anglo American was 5.8 per cent stronger at £29.27 and Antofagasta rose 7.3 per cent to 659.4p. Kazakhmys made gains of 3.9 per cent to £12.62 and Vedanta Resources put on 8.9 per cent to £19.41. Xstrata jumped 4.6 per cent to £39.62.

Fund management stocks recovered in line with the improved conditions on world equities markets. Schroders was 2.6 per cent higher at £11.14 and Man Group gained 6.7 to 579.1p.

New York equities were slightly higher after news broke of Microsoft's $44.6bn bid for Yahoo, the internet search engine.

Microsoft valued its unsolicited offer at $31 per share in cash or stock, a 63 per cent premium based on Yahoo's closing price on Thursday.

News of a fall in the number of jobs in the US in January compared with December took the edge of the bid excitement. Non-farm payrolls showed the number of jobs fell by 17,000, much worse than expectations of an 80,000 increase in the number of jobs created outside the agricultural sector.

In London, stocks directly exposed to US markets moved higher on hopes that the Federal Reserve's latest rate cut would help steer the world's biggest economy away from recession.

Housebuilder Taylor Wimpey rose 7.6 per cent to 193p, while heating and plumbing goods supplier Wolseley (NYSE:WOS) rose 5.1 per cent to 721.2p.

No comments: