London Report: FTSE closes near record high on takeover talk

BRITAIN’S top share index advanced to trade near a 14-year high yesterday, with takeover speculation surrounding companies such as Smith & Nephew and Weir Group lifting investors’ appetite for riskier assets.

The FTSE 100 index finished 0.3 percent higher at 6,871.29 points, outperforming slightly lower benchmark indexes in France, Germany, Italy and Spain. Trading volumes were just 39 percent of the index’s 90-day daily average because of a public holiday in many European countries.

The index ended just below the 14-year high scaled this month and was less than 2 per cent away from a record peak set in 1999. Analysts said the positive momentum following M&A talks could help the index to set a new record high in the near term.

“The improving economic backdrop and the pick up in business confidence are likely to be supportive for a pickup in M&A activity,” said HSBC equity strategist Robert Parkes.

“In addition, valuations are not stretched and there appears to be an element of pent up demand as a result of the depressed level of deal activity we have seen over the last few years.”

Medical-devices manufacturer Smith & Nephew was the top performer in the FTSE 100 index, up 3.6 per cent, extending Wednesday’s gains after a press report of a planned takeover bid from US rival Stryker.

Although Stryker denied it was planning a bid, traders said the return of takeover speculation would continue to support S&N shares in particular and the broader market in general.

Credit Suisse said in a note that if such a transaction were to materialise, the combined entity would significantly boost the company's market share in major areas.

“Depending on the capital structure applied and the prevailing debt financing costs, we think there would be substantial additional non-operational, purely financial gearing related benefits in such a transaction.

Engineering firm Weir Group gained 1 per cent a day after it abandoned efforts to acquire rival Metso. The Finnish company had rejected Weir’s second, improved takeover bid.

But some disappointment on the earnings front countered the M&A froth in the market. Kingfisher, Europe’s biggest home improvement retailer, fell 4.9 per cent, the top decliner in the FTSE 100, even though the group reported a 20 percent rise in first quarter retail profit and said it would pay a £100m special dividend.