17.30 (CLOSE): AstraZeneca’s rejection of Pfizer’s ‘final’ takeover offer worth £69billion sent shares in the UK company down 11 per cent today and weighed on the wider market.
The slide in Astra’s value to around £54billion had a bearing on the FTSE 100 Index, which closed 11.3 points lower at 6844.6 during a disappointing session.
Sentiment was earlier hit by a lacklustre rise in Chinese house prices, which fuelled fears that the world’s second largest economy will not be able to meet its 7.5 per cent annual growth target.
Pfizer shunned: AstraZeneca shares dropped after the firm rejected a final takeover bid from Viagra maker Pfzer.
Stocks with exposure to the global economic recovery were derailed by the worries, with Rio Tinto off 61.5p at 3225p and BHP Billiton 11p lower at 1942p.
The pound was up against the dollar, despite warnings from the Bank of England Governor Mark Carney over the weekend that surging house prices posed the biggest risk to the UK economy.
Sterling was up at 1.68 against the dollar and down to 1.22 against the euro.
The biggest faller in the top flight was AstraZeneca after the UK-based firm said the Viagra maker’s proposal on Sunday night undervalued it by £5 billion, claiming the offer was motivated by tax saving and cost cutting plans.
Astra shares plunged 536p to 4287.5p, although chairman Leif Johansson admitted he had ‘no idea’ whether the saga was over. If Pfizer walks away, it will not be able to return with a new offer for another six months.
Elsewhere, shares in Vodafone were lower for much of the session as AT&T’s weekend deal to buy satellite broadcaster DirectTV appeared to reduce the chances of a bid from the US telecoms firm.
Vodafone is due to publish its results tomorrow, with analysts forecasting a drop in annual profits to £12.9 billion due to weakness in many of its key European markets. Shares recovered to finish unchanged at 217.15p.
Banking stocks also showed signs of weakness, with Barclays down 2.6p to 239p and Standard Chartered off 2.5p at 1333.5p.
Among the top flight risers, low-cost airline easyJet recovered from recent market uncertainty over summer bookings thanks to the help of rival Ryanair, which highlighted improved booking trends in the current half year.
The update from the Dublin-based carrier, which included a forecast for a 4 per cent rise in passenger numbers this year, boosted confidence in the airline sector after a number of poor sessions in recent days.
British Airways owner International Airlines Group was 12.5p higher at 370.8p and easyJet lifted over 4 per cent, or up 71p to 1587p.
Ryanair was over 10 per cent higher to 7.02 euro after its results, even though annual profits fell for the first time in five years.
The biggest risers on the FTSE 100 Index were easyJet up 71p at 1587p, International Airlines Group up 12.5p at 370.8p, Mondi up 28p at 1033p and Shire up 87p at 3353p.
The biggest fallers on the FTSE 100 were AstraZeneca down 536p at 4287.5p, Coca Cola down 35p at 1346p, Hargreaves Lansdown down 29p at 1144p and Rio Tinto down 61.5p at 3225p.
15.00: The Footsie headed lower again in late afternoon trade, slipping back from its best levels for the session as US stocks made a mixed and cautious start today.
With an hour and a half of trading to go, the FTSE 100 index was down 24.5 point at 6,831.3 having reached a high earlier in the session at 6,862.2.
US blue chips slipped back in early deals in the absence of much fresh corporate or economic news for direction and as investors grew cautious over stock valuations once again with indexes near record levels.
Caution prevalent US stocks were wary in early trade keeping the Footsie subdbued.
In opening trade, the Dow Jones Industrial Average was off 36.3 points, to 16,454.9, while the broader S&P 500 and tech-laden Nasdaq Composite indexes both lost 0.2 per cent.
Bucking the weaker trend in New York, however, was drug maker Pfizer, which rallied 1.5 per cent higher after UK-listed rival AstraZeneca rejected the firm’s final increased £55 a share bid, with the group saying it will walk away from a deal unless the offer is recommended by the Anglo-Swedish firm.
A sharp fall by market heavyweight AstraZeneca was the main drag on the FTSE 100 in London, with the shares down 11 per cent or 548.5p at 4,275.0.
Dafydd Davies, senior trader at Prime Wealth said: ‘Either the Astra board are poker-faced masters at the M&A game given the manner in which they have approached the Pfizer bid, or the company is genuinely confident in it’s future drug pipeline and ability to generate organic growth.
‘Pfizer however may still come back with an improved offer – if it succeeds it could pay the UK corporate tax rate of 20 per cent, rather than the 35 per cent it currently pays in the US, which for the combined entity would still create significant savings.
‘Either way, the Prime Wealth team take the view that the outcome will be positive for investors – the dip this morning provides a great opportunity to buy into future growth at Astrazeneca or into one of the largest drug conglomerates in the world, which combined entity will become if Pfizer succeeds. Bid or no bid, the future is bright for Astrazeneca.’
13.00: The Footsie recovered from its morning lows but still remained weak at lunchtime weighed down by heavyweight drug maker AstraZeneca’s 13 per cent drop after its refusal to engage with Pfizer following a ‘final’ takeover offer worth £69billion.
Around mid session, the FTSE 100 index was 12.1 points lower at 6.843.7 albeit having rallied from an earlier low of 6.804.3.
Sentiment was also hit earlier by a lacklustre rise in Chinese house prices, released at the weekend, which fuelled fears that the world’s second largest economy will not be able to meet its 7.5 per cent annual growth target.
China concerns: Miners were weak as fresh data heightened fears over the strength of China’s economy.
Miners suffered the most from worries over the subdued performance of China’s economy, with Rio Tinto off 61.5p at 3,225.0p and BHP Billiton 22.0p lower at 1,931.0p.
Banking stocks were also showing signs of weakness, after Germany’s Deutsche Bank unveiled an 8billion euro fundraising to boost its capital base, with Barclays down 4.6p to 236.9p, Royal Bank of Scotland 2.4p lower at 320.4p and Lloyds Banking Group off 0.4p to 73.1p.
But the biggest faller was AstraZeneca after the UK-listed firm said the Viagra maker’s proposal last night undervalued it by £5 billion and claimed it was motivated by tax saving and cost cutting plans.
Astra shares plunged 602.75p to 4,220.75p, although chairman Leif Johansson admitted he had “no idea” whether the saga was over. If Pfizer walks away, it will not be able to return with a new offer for another six months.
Elsewhere, shares in Vodafone were 2.5p lower at 214.6p after AT&T’s weekend deal to buy satellite broadcaster DirectTV appeared to reduce the chances of a bid from the US telecoms firm.
Vodafone is due to publish its results tomorrow, with analysts forecasting a drop in annual profits to £12.9billion due to weakness in many of its key European markets.
On the second line, shares in fashion retailer Supergroup dropped over 4 per cent or 47.0p to 977.0p as Oriel Securities downgraded its rating for the firm behind the Superdry brand to reduce from hold.
Supergroup shares have almost halved in value since hitting an all-time high of 1,744.0p on April 1 knocked after fourth quarter figures earlier this month showed a 3.1 per cent fall in like for like retail sales.
But on the upside, shares in speciality chemical maker Alent topped the FTSE 250 leader board, up 8.9p to 311.2 after the group forecast an improvement in overall consumer confidence and an expected pick-up in sales in the second half of 2014.
Numis Securities upgraded its rating for Alent to add from hold today.
09.45: A slump by AstraZeneca shares after the UK-listed drug maker rejected a final £55 a share bid from US rival Pfizer dragged the Footsie lower in early morning trade.
Approaching midmorning, the FTSE 100 index was 40.8 points lower at 6,814.9, retreating further from a 14 year peak hit last week.
Shares in AstraZeneca slumped by more than 14 per cent after the Anglo-Swedish company rejected Pfizer’s new takeover offer worth more than £69billion, with the US firm saying it would walk away from the takeover if its bid is not recommended.
Footsie falls: The UK blue chip index retreated at the start of the week having reached a 14 year peak last week.
Astra said the Viagra maker’s proposal still undervalued the business and that Pfizer needed to offer around £74.3billion in order for it to consider talks.
Astra’s market value slid to £52.1billion – £17billion less than the value Pfizer had put on the company – following a decline of 709.75p to 4113.75p.
Peter Garnry, head of equity strategy at Saxo Bank said ‘There is rarely a fourth attempt to dance in a takeover bid so based on the developments over the weekend, the probability for a deal is now very low.
‘Despite Pfizer having spent a large amount of money and time, the signal seems clear from AstraZeneca’s Board of Directors, UK politicians and mainstream media that this is a bad deal, and we see limited efforts from Pfizer going forward. Its shareholders will not appreciate a fourth attempt as it will inflate the valuation too much relative to deal risk.’
But fellow drug maker Shire got a boost, adding 31.0p at 3,298.0p as traders speculated that Pfizer may decide to turn its attentions to another UK firm.
Elsewhere on the takeover front, shares in Vodafone shed another 2.4p at 214.7p after AT&T confirmed a deal to buy satellite broadcaster DirectTV at the weekend, appearing to reduce the chances of a bid for the UK mobile telecoms group from the US telecoms giant.
Another firm entangled in takeover moves, electricals stores firm Dixons Retail was the top FTSE 100 gainer, up 0.8p to 44.7p as the firm – which on Friday confirmed a £33bn merger deal with Carphone Warehouse – unveiled plans to sell its loss-making ElectroWorld operations in Central Europe to local specialist NAY AS.
Electroworld operates 26 specialist electrical retail stores across Czech Republic and Slovakia.
Among the other blue chip risers, low-cost airline easyJet was 3 per cent higher after rival Ryanair highlighted improved booking trends for the summer.
The update from the Dublin-based carrier boosted confidence in the airline sector after a number of poor sessions in recent days.
British Airways owner International Airlines Group was 8.8p higher at 367.15p and easyJet added 52p to 1568p. Ryanair was 6 per cent higher after its results, even though annual profits fell for the first time in five years.
Back on the downside, heavyweight mining issues were also a drag on the blue chips, with Rio Tinto losing 61.5p at 3,225.0 and BHP Billiton down 21.5p at 1,931.5p knocked by concerns about slower growth in top metals consumer China after news Beijing is tightening its grip on interbank lending to defuse risks in the shadow banking system.
08.30: The Footsie dropped back in early trade, reversing Friday’s gains led by a 13 per cent drop by AstraZeneca as the drugmaker rejected a final £55 a share bid from Pfizer.
The US group said it would walk away from the takeover play unless the Anglo-Swedish firm recommended the offer.
In opening deals, the FTSE 100 index lost 21.0 points at 6,831.8, having gained 14.9 points on Friday to finish back near a 14 year peak led up by bid speculation among supermarkets on rumours that a private equity firm could make a move for William Morrison.
Morrison’s shares remained in demand this morning, up 0.6p at 213.5p.
Overall the market drifted lower as investors sought fresh impetus for an assault on its all-time highs, with little other corporate or economic news to stimulate interest today.
Jonathan Sudaria, dealer at London Capital Group: ‘After posting new highs last week, the bulls took a breather and we’ve drifted back from those levels but it doesn’t look like panic is setting in and they’re taking it in their stride.
‘As evidenced by the lack of volatility, there aren’t any clear catalysts for traders to get their teeth into and back up their convictions with big trades.
‘Until something happens to prick trader’s state of apathy, expect markets to continue drifting,’ he added.
Investors were also apprehensive after the Governor of the Bank of England expressed concern about the return of large mortgages and suggested that the Government’s flagship scheme to make home loans cheaper will be reined in within months.
Mark Carney said he was ready to take action on a number of fronts if Britain’s resurgent housing market begins to threaten the economy.
He expressed particular concern about the return of big mortgages – more than four and a half times a borrower’s salary – which were widespread before the financial crash of 2007 and now ‘creeping up’ again.
The Governor is thought to be worried that Help to Buy – by sending a message that houses can be bought with a deposit of as little as five per cent – might encourage other homebuyers to borrow than they should.
Carney’s caution came as figures published overnight by Rightmove showed asking prices for houses rose by 8.9 per cent in the year to May, meaning the average property is on sale at a record high of £272,003.
Stocks to watch include:
ASTRAZENECA – The UK-listed drugmaker has rejected a final offer from Pfizer, after the US pharmaceutical said on Sunday it had raised its indicative bid to £69.3billion pounds, or £55 a share, and would walk away if AstraZeneca did not accept it.
GLAXOSMITHKLINE – Chinese corruption charges against executives of the British drugmaker could be just the start of the pharmaceutical industry’s problems in its biggest emerging drugs market, according to industry sources in China.
ROYAL BANK OF SCOTLAND – Royal Bank of Scotland said on Sunday it is winding down its interest-rate trading business as capital and operating costs increase.
RIO TINTO – Global miner Rio Tinto is not actively seeking to divest assets this year but would consider any attractive offers, Chief Executive Sam Walsh said late on Friday.
BABCOCK INTERNATIONAL – The engineering contractor posted a 15 per cent rise in full year pretax profits and said it was confident it would make further strong progress in its new financial year.
MITIE – The outsourcing group posted a 4.3 per cent rise in full year pretax profit, beating average analysts’ expectations, and said it was on track to deliver sustainable growth in the coming year.
CRANSWICK – The pork and pies producer reported a 6 per cent rise in full year pretax profit helped by increased consumer appetite for locally produced pork and products such as sausage, bacon and sandwiches.
DIXONS – The electronics retailer has announced the sale of its central European operations, and expects to receive a small deferred cash consideration spread over three years from the deal.
BANKS – Revenue at the world’s 10 largest investment banks fell nine per cent to $ 42.8billion in the first quarter, new data has showed, as tough new rules forcing banks to hold more capital led to a retreat from riskier types of trading.
PROPERTY – Three British retail property groups – Land Securities, British Land and Hammerson – are among bidders eyeing a stake in Bluewater Shopping Centre in Kent for £600million, The Times reported.
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