London Report: AstraZeneca has a healing effect on the FTSE 100

ASTRAZENECA shares surged to boost Britain’s top share index yesterday, after US rival Pfizer said it wanted to buy the drugmaker.

The FTSE 100 closed just off a seven-week closing high after a volatile afternoon session as investors digested new sanctions on Russia from the US.

AstraZeneca jumped 14.4 per cent after Pfizer confirmed yesterday it had approached the drugmaker in January and said it had contacted the company again on 26 April seeking discussions about a takeover in what would be one of the largest pharmaceuticals deals.

The renewed approach is the latest in a burst of deal-making and bids in the healthcare industry aimed at gaining scale or specialising in certain areas.

“AstraZeneca was conclusive in saying that the bid was too low, hence the reason we’re seeing such a hefty premium being applied to Friday’s prices today,” said Alastair McCaig, analyst at IG, adding that it was encouraging for the market that activity in mergers and acquisitions was picking up.

AstraZeneca added about 29 points to the FTSE 100. The shares traded in volume of nearly six times their 90-day daily average, with total turnover on the index just 80 per cent of its average.

The prospect of more corporate activity in the sector also lifted Shire and GlaxoSmithKline. Shire added around 10 per cent and GlaxoSmithKline about six per cent last week.

Without further news, Astra shares were set to consolidate around current levels, extending their gains only if it looks as if a deal is going ahead, traders said.

New sanctions on Russia from the United States contributed to choppy afternoon trade.

Markets initially took a hit when the sanctions were announced, fearing economic fallout from the move, but rebounded slightly as analysts said the details of the sanctions were less harsh than anticipated.

“It’s been a long week since we had a sense of optimism that negotiations could pave the way to a solution. But these are targeted, rather than a widescale, scatter-gun mentality, which is encouraging,” IG’s McCaig said.

The FTSE 100 was up 14.47 points, or 0.2 per cent, at 6,700.16 by the close, with AstraZeneca’s rise bringing the index into positive territory.

Analysts said a rebound in corporate dealmaking could offset concerns about frothy valuations for British firms and lower analyst forecasts, keeping the FTSE 100 stuck in a range for the time being.