City aflame with takeover talk of ARM and Xstrata
Rosamund Urwin
21.04.10
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Talk of mega-takeover bids for a pair of FTSE 100 companies had investors excited today.
The City's gossips were pushing two tales: that Apple is considering a bid for ARM Holdings and that Vale could make an offer for Xstrata.
Of the two yarns, most investors seemed to think an approach was more likely for ARM, the Cambridge-based technology company which was recently promoted to the top flight.
The chipmaker's shares shot up 8.1p to 251.1p, topping the Footsie winners' list, as more than five million shares changed hands by midday.
Apple is ARM's biggest customer and speculation is that the iPad maker wants to take chip design in house.
“A deal would make a lot of sense for Apple,” said one trader. “That way, they could stop ARM's technology from ending up in everyone else's computers and gadgets.” Traders reckon a bid would come in at around 400p a share, valuing ARM at more than ￡5.2 billion.
The takeover speculation was fuelled by stellar second-quarter figures from Apple last night smashing Wall Street's forecasts. This was good news for ARM even without a bid, because ARM pockets royalties from the sale of iPads.
As for the Xstrata takeover rumour, the company found itself in the unaccustomed role today of being the possible pursued rather than pursuer ― under Mick Davis's leadership it has been keen on acquisitions itself, last year trying to pull Anglo American into a merger of equals.
But some traders were dismissive of the talk. “It has been mooted before ― treat this one with caution,” said one.
More than 6.5 million shares in Xstrata were traded by midday, although the stock slipped 12½p to 1204½p as it traded ex-dividend. All the bid speculation failed to keep shares in London in positive territory, however. The FTSE 100 index shed 36.69 points to 5747 as losses from the heavyweight miners dragged down the benchmark. Manoj Ladwa, senior trader at ETX Capital, said: “The market is looking a bit tired. Volumes are light and shares look like they are due a pull back. I expect the FTSE 100 could drift down to around 5600 points before the election.”
Six companies going ex-dividend shaved more than two points off the index, including weapons maker BAE Systems, off 13.4p at 364p and oil services group Petrofac, down 17p at 1216p. But British Airways climbed 2.3p to 236.2p as the ban on flights in the UK was lifted. Other volcano-hit stocks were also better, with package holidays group TUI Travel gaining 2.5p to 291.7p and FTSE 250-listed budget carrier easyJet 6.8p better at 486.3p
Also on the mid-tier, WH Smith was up 2p to 509½p ahead of a trading update tomorrow when the City will want to hear how much the retailer has suffered from the grounding of flights. The stationery and chocolate chain has a large number of stores in airports which are among its most lucrative.
Game Group lost 10.8p to 90.6p as it said it was game over for two of its bosses, including chief executive Lisa Morgan, and as it reported a sharp drop in profits.
Game over for computer chain chief and deputy
Its poor figures weighed on fellow video games seller HMV, which fell 3.8p to 81.2p.
Ladbrokes shot up 5.2p to 162.6p after the bookie reached an agreement with the tax man. The company should receive ￡80 million from HMRC.
Panmure Gordon raised its target price for Ladbrokes' shares from 125p to 141p, but retains a sell rating on the stock.
Pollster YouGov ticked up ½p to 44p on speculation of a bigger-than-anticipated boost to business from the general election.
Back among the big boys, BHP Billiton fell 46p to 2133.6p after finding itself entangled in a corruption probe. Disappointing metals production numbers also weighed on the mining giant.
BHP Billiton staff in corruption investigation
Trader talk
Serial entrepreneur and activist investor Giles Clarke has bought a 2.99% stake, or 27.54 million shares worth about ￡260,000 in unloved small-cap precious metals miner Herencia Resources. Clarke is best known as the man who built Majestic Wine into a national chain but has also built up and sold on several other household names such as Safestore self storage.
“Giles sees a catalyst for a lot of value [in Herencia] and will ensure that it is properly realised,” said a spokesperson, pointing to his stewardship of Amerisur Resources. Herencia owns the extraction rights to several precious metal prospects in Chile. The company reported positive results last month from exploratory drilling in new veins. Global metals group Nyrstar has also bought heavily into the group this week, taking a 10.4% stake and a place on the board.
Tomorrow's agenda
The state of the public finances will be under the spotlight when the latest figures on net borrowing are released. Economists expect borrowing to remain in line with that announced at last month's Budget at ￡24 billion. The Society of Motor Manufacturers and Traders also posts monthly car output figures.
Housebuilder Persimmon updates shareholders on first-quarter trading. Earlier this year chief executive Mike Farley was in bullish mood, saying Persimmon hit sales of ￡900 million in the three months to March, compared with ￡698 million at the same time last year.
High street perennial Punch Taverns also updates investors with first-half results. Punch's figures cover the six months to March 6. After chief executive Giles Thorley last month announced his decision to step down after nine years in charge, Punch is also expected to provide more information on its search for his successor.
Portfolio
BUY: EASYJET
Hordes of easyJet's planes are grounded but JPMorgan says shares in the budget airline are set to take off, and upgrades the stock from neutral to overweight. EasyJet said that despite the ￡25 million adverse impact of weather-related disruptions in December and January, trading in the second half was robust, although JPMorgan analysts acknowledge that was “pre-volcanic interruptions”. It says easyJet will benefit when lower fuel costs feed through, and the recent appointment of a new chief executive and finance director should eliminate boardroom uncertainty. It adds: “The reopening of European airspace is also likely to be a positive catalyst.”
SELL: CRYSTALOX
It's time to get shot of stock in Crystalox, which supplies solar-cell markets with raw materials, according to KBC Peel Hunt. The firm's analysts note there has been strong industry volume growth in the first half of this year but warn that the gap between Chinese and Western producer costs is “too wide”, and “capacity is expanding too quickly.” KBC reckons Crystalox will continue to hit profitability, but say profit level is vulnerable to further downgrades. It names a price target of 42p on the firm's shares.
HOLD: TUI TRAVEL
After travel group TUI announced plans to raise ￡500 million to fund acquisitions through the issue of a convertible bond and new banking facilities, Panmure Gordon says hang on to the stock. Its analysts say that, as well as “extending and diversifying” TUI's debt maturity profile, the deal will provide additional financing for acquisitions, where the group has a pipeline of attractive opportunities. Tui admitted this week that the volcanic ash cloud from Iceland that had grounded thousands of its passengers had cost it ￡26 million so far, rising by ￡6 million a day. Panmure names a 325p price target.
