UKX FTSE 100 Index

By Carla Mozee, MarketWatch

Burberry, British American Tobacco higher on M&A prospects

U.K. stocks seesawed Friday, but Burberry Group PLC and British American Tobacco PLC were decisively higher on separate merger prospects for the luxury-goods retailer and the cigarette maker.

The FTSE 100 index was down 0.1% at 7,020.85 and has been darting in between small gains and losses throughout the session. Consumer goods and basic materials were showing gains, the financial sector was flip-flopping while all other groups were stuck in the red.

The index on Thursday also had a choppy session (http://www.marketwatch.com/story/uk-stocks-slip-as-retail-sales-miss-forecasts-2016-10-20) and closed up less than 0.1% higher. For the week, the blue-chips benchmark was on track for a 0.1% rise, which would come after last week's loss of 0.4%.

M&A moves?: Burberry shares (BRBY.LN) (BRBY.LN) leapt to the top of the benchmark Friday afternoon, jumping as much as 8.1% after a report the British fashion house may merge with American high-end goods retailer Coach Inc (http://www.marketwatch.com/story/coach-burberry-shares-jump-after-report-on-potential-20-billion-merger-2016-10-21).(COH) in a $20 billion deal.

Coach is working with investment banking advisory Evercore on a possible deal, Betaville, a website focused on deals and deal makers, reported, citing sources.

Burberry shares pared their gain to 5.6% at GBP15.31, which still put them on course for their best session since July 13, according to FactSet data. It was on Tuesday that the shares sank 7.2%, the biggest loss in a year, after the company posted a 4% quarterly drop in underlying revenue (http://www.marketwatch.com/story/burberry-revenue-weighed-down-by-us-hong-kong-2016-10-18).

Elsewhere on the FTSE 100, shares of clothing retailer Next PLC (NXT.LN) were off 0.5% and department store chain Marks & Spencer PLC (MKS.LN) slipped 0.4%.

Investors drove up British American Tobacco (BATS.LN) (BATS.LN) shares up by 2.4%, on track for their best session since Sept. 2, FactSet data showed. The move came after the company proposed buying the stake in Reynolds American Inc (http://www.marketwatch.com/story/bat-in-47-billion-offer-for-reynolds-stake-2016-10-21). (RAI) that it doesn't already own for $47 billion.

BAT shares are up as investors "look past the hefty price tag and think of the increased market share and revenues that will accrue in the future," said Chris Beauchamp, chief market analyst at IG, in a note.

Imperial Brands PLC (IMBBY) (IMBBY) , whose brands include Davidoff, was 2.4% higher "on expectations that it too might either be forced to look for new acquisitions or, perhaps more plausibly, become a bid target itself," Beauchamp said.

Reynolds shares zoomed up 20% (http://www.marketwatch.com/story/reynolds-jumps-18-premarket-on-47-billion-bat-offer-2016-10-21) ahead of Wall Street's open.

Trading in the other direction, InterContinental Hotels Group PLC (http://www.marketwatch.com/story/ihg-strikes-confident-tone-about-yearly-outlook-2016-10-21)(IHG) shares fell 1.7%. The owner of the Holiday Inn, Crowne Plaza and other chains posted a 1.3% rise in third-quarter revenue per available room, slower than the 2.1% rate expected by analysts polled by FactSet.

"It's not all bad news though. With 50% of group and 40% of European central costs in sterling, as well as 70% of group debt, the lower pound should prove a benefit, even if (as a dollar reporter) a stronger [U.S. dollar] undermines revenue growth," wrote Laith Khalaf, senior analyst at Hargreaves Lansdown.

The pound was buying $1.2183, down from $1.2252 late Thursday.

(END) Dow Jones Newswires

October 21, 2016 09:29 ET (13:29 GMT)

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