Britain's FTSE Bolstered By Possibility Of M&A

by
Reuters
The FTSE 100 edged higher on Monday, rebounding from a technical support level as transatlantic merger and acquisition activity boosted the healthcare and media sectors.

* FTSE 100 up 0.4 percent

* Britain features heavily in CS takeover targets basket

* WPP boosted by prospects of M&A, new client wins

The FTSE 100 edged higher on Monday, rebounding from a technical support level as transatlantic merger and acquisition activity boosted the healthcare and media sectors.

A proposed merger between Publicis and Omnicom to create the world's biggest advertising agency buoyed British peer WPP, whose shares added 1.9 percent.

The head of WPP, which currently holds the top global spot, said further consolidation in the industry was inevitable, while analysts at Barclays said WPP could win some new clients as a result of disruptions caused by the merger.

Another strong gainer was drugmaker Shire - long viewed as a takeover target - which added 1.5 percent after U.S. generic rival Perrigo agreed to buy Ireland's Elan for $8.6 billion (5.5 billion pounds).

Analysts at Credit Suisse noted that M&A activity in Europe is up on last year, recommending a basket of 17 stocks that are potential takeover targets, 10 of which are British. They included seller of luxury raincoats and leather goods Burberry and software company Sage.

Anticipation of future deals helped lift the FTSE 23.44 points or 0.4 percent to 6,578.23 points by 1021 GMT, bouncing up from technical support around the 6,550 mark at the 61.8 percent Fibonacci retracement of its mid-May to mid-June slump.

"People have been predicting this for the last two or three years ... but the difference is that there is enough confidence now that you'll actually be able to make a return on the cash to make it worthwhile," said Peter Botham, chief investment officer at private bank Brown Shipley.

"I think it will be across the board ... You can pick the obvious one like pharmaceuticals and IT, but most sectors have got companies with pretty strong balance sheets."

The blue-chip index lacked the momentum to re-test last week's near-two month high of 6,662.19, however, hampered in part by a fall in Barclays, its 13th biggest company.

Barclays shares retreated 2.8 percent to 311 pence after weekend media reports that the lender sounded out investors about a possible 4 billion pound rights issue in order to meet tougher rules on capital.

Barclays said it would give an update on its capital plans alongside its first-half results on Tuesday.

"If Barclays does raise as much as 4 billion pounds "surplus" equity, on which it will earn little return, the incremental drag on return on equity will likely limit our view on fair value to circa 345 pence, our current target," Investec analyst Ian Gordon said in a note.

"If Barclays has the courage to say no, we would see further upside, but sadly, this appears less likely."