UK/Euro Financial Market Daily Evening Briefing 23-07-2007

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London shares close up, NY higher, Friends Provident top riser on M&A news
 
UK blue-chips closed up, at session highs, encouraged by bullish trading on Wall Street, with Friends Provident the top blue-chip riser on news it is in advanced merger discussion with fellow life-insurer Resolution.
   
At the close, the FTSE 100 was 39.2 points ahead at 6,624.4, however the FTSE 250 midcap index closed 44.4 lower at 11,775.0. Volume was fair with 2.233 bln shares changing hands in 480,277 deals.
   
"It's been a nominally positive start to the week for the London index but overall stocks have been somewhat mixed," said a trader from CMC Markets.
   
In the US, Wall Street was higher by the London close after a fresh round of buyout news offered evidence that Wall Street's penchant for dealmaking hasn't disappeared.
    
The Dow Jones was up 113.00 at 13,963.50 by the London close, while the Nasdaq Composite added 14.80 to 2,702.40.
    
US stocks rebounded from a sell-off Friday after Transocean Inc, an offshore contract drilling services company, and GlobalSantaFe Corp. said on Monday that the companies struck an agreement to merge. The combined company will have a market value of about 53 bln usd.
   
In addition, equipment rental company United Rentals Inc. said it agreed to be taken private by affiliates of Cerberus Capital Management LP for about 4 bln usd in cash.
   
Back in London, financial M&A news dominated the risers after two of the country's largest life insurers, Friends Provident and Resolution, confirmed they were in negotiations over a possible 8.3 bln stg merger.
   
Friends Provident was the top FTSE 100 riser, adding 14-3/4 to 201, with Resolution also featuring on the leaderboard, up 7 pence at 636. If the merger goes ahead, Resolution shareholders would own 50.9 pct of the merged company while Friends Provident would have a 49.1 pct shareholding.
   
"Friends Provident and Resolution believe a merger would create significant value for both sets of shareholders by combining Friends Provident's new business growth opportunities with Resolution's strong cash flow generation," the groups said in a statement.
   
The news sparked a rush of buying interest throughout the sector with Prudential up 10 at 733-1/2, Legal & General rising 4.10 to 155.30 and Old Mutual 1.90 ahead at 175.60.

In broker reaction, Collins Stewart said Resolution will be giving up a large part of the benefits stemming from the Abbey Life deal to Friends Provident. "However, we think this is a necessary evil in an otherwise logical business combination," he said.
   
He added that the deal "fulfils several objectives," combining the "efficient and scalable operating platform" of Friends Provident with the "massively cash-generative" Resolution. But insurers are having to contend with negativity from the effect of the floods. Norwich Union owner Aviva was 3-1/2 pence lower at 736.

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Elsewhere, the ongoing ABN-Amro takeover saga took a new twist after Barclays, up 21-1/2 pence at 735, raised its all-shares offer for its Dutch peer after announcing the subscription of new shares which, if the takeover succeeds, will hand up to 10 pct of its share ownership to China Development Bank and Temasek Holdings.
   
The move is seen by some traders as putting the UK bank "in play" as, if its move for ABN fails, then they themselves may be more vulnerable to a takeover approach. Barclays revised its offer for ABN-Amro to 67.5 bln eur from 65 bln, which is still 8 pct less than the RBS-led consortium offer.
   
Meanwhile, the mining sector rallied after last week's losses, with Anglo American up 81 at 3,257, Antofagasta 27 higher at 763, BHP Billiton adding 32 at 1,517, Kazakhmys rising 23 at 1,386, while Lonmin rose 50 at 3,735 and Vedanta Resources gained 34 at 1,809.
   
Elsewhere, SABMiller added 26 pence to 1,332 after Citigroup raised its stance to 'buy' from 'hold' and upped its target to 1,500 pence from 1,215 pence as part of a sector reshuffle.
   
Positive broker comment also provided the spur for HSBC, which took on 6-1/2 pence to 901-1/2 after Lehman Brothers upped its rating to 'overweight'.
   
Lehman argued that the market has paid insufficient attention to the positive growth drivers in Asian and emerging markets and too much attention to the risks in the US and mediocre trends in the UK.
   
Pharmaceutical firm Shire made headway, up 15 at 1,235 after Deutsche Bank upped its price target to 1,400 pence from 1,315, on the grounds that execution risk at the company has diminished.
   
The broker said that Vyvanse, a treatment for attention deficit hyperactivity disorder, seemed to have performed well since its launch two weeks ago. Deutsche Bank reiterated its 'buy' stance and said that it had now had increased confidence in its long term forecasts for Shire.
   
Moving onto the downside, HBOS was a casualty, down 4 pence at 995, after Lehman Brothers cut its stance to 'underweight' from 'equal weight', saying it regards the group as the most leveraged of the major banks amid the difficult operating environment for mortgages.
   
A broker downgrade also caused Johnson Matthey shares to slip, down 8 pence at 1,802, after Merrill Lynch downgraded its stance to 'neutral' from 'buy' on valuation grounds and due to a question mark surrounding royalties relating to GPC Biotech's oncology product, satraplatin, whose launch may be held up by the FDA.
   
Telecoms heavyweight Vodafone turned negative, trading 0.20 pence lower at 160.60 ahead of tomorrow's AGM at which activist shareholders are to grill management plans for its stake in US joint venture Verizon Wireless.
   
According to the Sunday Times, activist investor Efficient Capital Structures (ECS) -- backed by former Marconi executive John Mayo has won the backing of fund managers, including Jupiter and Invesco Perpetual in its lobby for hiving off Vodafone's 45 pct holding in Verizon, and to raise its debt levels to finance a cash return of as much as 38 bln stg.

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Also on the back foot was GlaxoSmithKline, 6 pence lighter at 1,272, ahead of its second-quarter results on Wednesday, which will be scrutinised for the fallout of a safety scare that has caused sales of its diabetes drug Avandia to plunge.
   
Turning to the second rung, software company Misys rose 5-1/2 pence to 241 after news the company has sold its Diagnostic Information business. Dealers said Panmure Gordon has upgraded its recommendation to 'hold' from 'sell' in  reaction.
   
On the downside, FKI was the top midcap loser, down 13-3/4 pence to 110-1/4 ahead of its AGM tomorrow with rumours rife that an earlier confirmed 130 pence takeover approach -- thought to have been from private equity -- may have evaporated.
   
Infrastructure software specialist Autonomy Corporation fell back 54 to 881-1/2 on some profit-taking after it said its first-half adjusted pretax profit rose to 46.9 mln usd from 28 mln during the same period last year.
   
Despite the shares falls, earlier today Citigroup, UBS and Seymour Pierce all reiterated their 'buy' rating on the shares.
   
Finally, Sthree lost 20-3/4 at 488-3/4, as profit takers moved in following the strong run up to the recruitment and staffing group's first half results today.
   
Earlier today, SThree posted a 54 pct increase in pretax profit after exceptional items to 19.2 mln stg compared with 12.5 mln stg in the same period last year. Revenues for the period rose 35.1 pct to 240.4 mln stg.

UK Diary of Events

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UK Small Cap Report

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Paris shares close up, tracking US after sell-off; Michelin leads

The CAC-40 index ended up 52.00 points or 0.87 pct at 6,009.160. 33 AC-40 stocks closed up, five were down amd two were unchanged.
   
Michelin led the technical recovery, adding 2.80 eur or 2.75 pct at 104.73 after sharp losses last week. Analysts anticipate a sharp recover in the group's operating margin when it reports first-half results Friday thanks to a stabilisation of raw material prices.
   
Total added 1.08 or 1.82 pct at 60.55 after dropping 2.73 pct Friday and oil services group Technip saw its shares rise 1.09 or 1.81 pct at 61.36.
    
A major news focus in Paris was a report in German weekly Wirtschaftswoche which cited sources close to the company as saying that French president Sarkozy would like to buy out Siemens' stake in Areva NP, its nuclear power joint venture with Areva, to pave the way for a merger between Areva, Alstom and Bouygues.
   
Some kind of tie-up involving the three companies has been mooted for several months, supposedly backed by Sarkozy as a means of creating a French energy giant. Siemens said today that it would like to retain its ownership in Areva NP, while an Areva spokesman said there is no plan for any change in Areva NP's capital structure.
       
Alstom shares closed up 2.04 or 1.52 pct at 136.59, Bouygues added 0.94 or 1.54 pct at 62.09, and Areva was up 7.97 or 0.99 pct at 809.97.
   
Still in the energy sector, EDF was also in focus after announcing Friday a nuclear-power joint venture with Constellation Energy Group Inc in the US. The utility's shares closed up 0.66 or 0.87 pct at 76.91, coming off an earlier fall, as investors saw the deal as positive but with little short-term financial impact.
   
Constellation and EDF's joint venture aims to develop and operate nuclear power plants in the US and Canada, based on Areva's advanced nuclear power plant design. EDF will invest 625 mln usd in the joint venture and may buy up to 9.9 pct of Constellation Energy's stock over the next five years.
   
A leading European broker argued that the investment is limited with regards to EDF's size but "still material enough to show the group's commitment to expanding further in the USA".
   
French broker CM-CIC was more enthusiastic, arguing in a note that the joint venture is a "major announcement for EDF, which takes a giant step forward and thereby clarifies its development strategy". CM-CIC upgraded EDF to 'accumulate' versus 'hold' previously, with an increased target of 85 eur.
   
In the car sector, Peugeot rose 1.14 or 1.78 pct at 65.10 after Exane BNP Paribas' decision to lift its price target to 73 eur from 58.
       
Other risers included Lafarge, up 2.00 or 129.28 pct at 129.28, and Vinci up 0.58 or 1.04 pct at 56.35, with the two construction groups recovering from Friday's losses prompted by fears over the housing market.
    
On the downside, banking stocks continued to suffer from worries about suprime mortgages. Dexia was down 0.22 or 0.93 pct at 23.44, and others underperformed, with Societe Generale up 0.13 or 0.12 pct at 135.70 and Credit Agricole flat at 29.45.
   
Dexia was also the object of market rumours that it will launch a counter-bid for German public finance group Depfa Bank plc following Hypo Real Estate's 5.7 bln eur offer.
      
Vallourec was the biggest faller on the CAC-40, shedding 3.23 or 1.49 pct at 121.95 to extend its sharp drop Friday, when its announcement of the sale of two French units to served to cool speculation that ArcelorMittal may make a bid for the whole of Vallourec.

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German shares close higher as Wall Street opens in positive territory
 
The DAX closed 69.36 points or 0.88 pct higher at today's highest level of 7,944.21, after having recovered from today's low of 7,836.42. The MDAX added 36.77 points or 0.33 pct at 11,147.55 and the TecDAX gained 13.03 points or 1.39 pct to 953.54. DAX futures were up 89.50 points or 1.13 pct at 7,955.50, while bund futures dropped 0.10 points or 0.09 pct to 111.84.
  
SAP lead blue chips higher, adding 1.14 eur or 2.85 pct to 41.14, as rumours resurfaced that Oracle is mulling a bid of 50 eur a share for the German software giant.
   
DaimlerChrysler followed, rising 1.78 eur or 2.73 pct to 66.89, as traders pointed to rumours that the automaker will exceed earnings expectations on Wednesday and as market watchers said the deal with Cerberus has finally been settled and secured.
   
Fresenius Medical Care added 0.76 eur or 2.29 pct at 33.97, as the impact of new US Medicare restrictions on anaemia drugs was seen as less severe than some feared, with no changes expected for FMC's distribution of the drug Epogen, manufactured by Amgen Inc.
   
Siemens rose 1.50 eur or 1.42 pct to 107.47, while Linde gained 1.10 eur or 1.27 pct to 87.99.
   
At the other end, Hypo Real Estate fell 3.06 eur or 6.22 to 46.11, as the biggest large cap decliner today.
   
The group announced its plans to acquire peer Depfa Bank in a 5.7 bln eur deal, valuing Depfa at 16.41 eur per share, which received mixed review from analysts.
   
While several analysts highlighted that the two banks are highly complementary, others questioned whether the merger will lead to a significant increase in profitability.
   
Sal Oppenheim cut its stance on Hypo Real Estate to 'reduce' from 'buy' and lowered its target to 41 eur from 57 eur.  "We do not think that the acquisition of Depfa Bank is accretive shareholder value for Hypo Real Estate," Sal.Oppenheim analyst Carsten Werle said in a note to clients, adding that he considers the synergy potential limited.
   
Meanwhile, shares in Depfa Bank rose to the top of the MDAX, adding 1.66 eur or 12.03 pct at 15.46 on the merger news. Gagfah declined to the bottom of the MDAX, losing 0.43 eur or 2.79 to 15.00.
   
Over on the TecDAX, Tele Atlas gained 5.07 eur or 30.40 pct to 21.75 as fellow Dutch company TomTom launched a 21.25 eur per share takeover bid. Freenet traded ex-special dividend of 6.00 eur and technically dropped 5.95 eur or 24.19 pct.

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Amsterdam shares close at highs after quiet day; TomTom, TeleAtlas soar

The AEX closed up 3.93 points or 0.71 pct at 558.95, after opening at 554.71 and reaching its high minutes before the end of trading. Government bonds traded higher and the euro stood at 1.3813 usd versus 1.3828 usd late Friday.
   
Personal navigation device maker TomTom led AEX gainers, soaring 11.03 pct to 45.50 after releasing better-than-expected second-quarter earnings a day ahead of schedule in connection with the company offer for map maker Tele Atlas, which jumped 31.06 pct to 21.69. Petercam upgraded TeleAtlas to 'buy' as a result of the offer.
   
Oil-related issues were also to the fore, with SBM Offshore up 3.89 pct to 30.99, Royal Dutch Shell 1.38 pct higher to 30.14 and Fugro adding 2.65 pct to 50.0. Traders attributed the rise to the merger between Transocean Incorp and GlobalSantaFe, as well as to Halliburton Co's well-received second-quarter results.
   
Amid food and drink-related issues, Heineken advanced 1.83 pct to 47.20 after price target upgrades at Citigroup and Rabo Securities. Ahold was up 0.82 pct to 9.85.
   
Ordina added 0.96 pct at 15.76 after the IT services group was initiated at 'buy' with a 20.30 eur price target at Keijser Capital.
   
Sector peer LogicaCMG gained 1.27 pct at 2.39, while Getronics rose 0.90 pct to 5.58.
  
Real estate share Unibail-Rodamco, which is due for de-listing as part of the merger of Unibail and Rodamco Europe, led AEX decliners, shedding 1.75 pct at 184.86.
   
Staffing share Vedior slid 1.55 pct to 21.55, while peer Randstad was off by 0.22 pct at 62.15, and midcap staffing share USG People declined 0.24 pct to 33.32 eur.
   
TNT was off 0.93 pct to 33.09 ahead of results expected next week and Akzo Nobel shed 0.19 pct to 62.90 ahead of results expected tomorrow.
   
Boskalis led midcap decliners, off 0.96 pct to 29.02. Other decliners included Wereldhave, down 0.69 pct to 99.62 and Crucell, slipping 0.53 pct to 16.92.

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