Market Round-up: Prudential ‘vulnerable’ after its AIG Asian move

The insurer's shares have fallen by almost a fifth since announcing its takeover of the Asian life business of AIG on Monday, and today the talk among traders was that this has left it vulnerable to a bid.

"The Pru being bid for must be a major worry for its bosses as the shares have collapsed," said one trader.

"And given that it is paying in cash and stock for the deal, it'll have to cough up more now."

A suitor from overseas was deemed the most likely possible bidder for the Pru, although another trader dismissed the talk as "spivvy rumours".

Some speculated that the takeover deal could collapse but most in the City thought it was unlikely that the Pru would walk away, although one broker said: "There must be a level [of the stock] where the pressure to break the deal becomes irresistible."

The Pru will have to pay a £153 million break fee if it ditches the deal, which it can only do under specific circumstances, which are as yet unclear.

Prudential's shares were finally on the up, topping the Footsie winners' list, 17p higher at 504½p. The rise was attributed to a technical correction after the past two days' big falls. "Great uncertainty still hangs over the company since the deal," said a trader.

A wilder rumour that Aviva and Clive Cowdery's buyout vehicle Resolution could team up for a bid for Prudential was deemed unlikely.

"That sounds a bit far-fetched," said one dealer, who has often been keen on some of the City's crazier yarns. Most speculation around Resolution suggested that Cowdery will look at smaller deals or simply wait, rather than make a big move in the coming months.

"We don't think it will be doing any more deals the size of Friends Provident. It is more likely Resolution will sit on its hands than go on a buying spree," a trader said.

He believes that fears that Resolution will overpay for its next acquisition are weighing on the share price.

"The market is scared they may be forced to buy something at a premium and then do a placing or a rights like Prudential," he said. "Instead, they should focus on what they are doing, especially if Resolution believes the insurance sector looks overvalued. Then the shares should improve."

Its shares fell 1p to 71.2p. They are expected to be booted out of the top flight next week at the quarterly reshuffle of the indices.

Rentokil Initial, the pest control-to-parcel deliveries group, is the prime candidate to take Resolution's place. Rentokil added 0.2p to 132.2p.

Shares in London were almost flat, with the FTSE 100 dipping 4.64 points to 5479.42. On the mid-tier, HMV Group was a winner for a second day, as investors took note of broker speculation that the entertainment retailer could attract a private-equity suitor.

Shares in the group ticked up 1.1p to 72.1p despite Citigroup trimming its target price from 150p to 110p for the shares.

Back in the top flight, oil explorer Tullow Oil continued its rise after a rumour spread late yesterday that titan of crude BP might be sniffing round the group.

The talk came despite BP chief executive Tony Hayward saying that if the company were to make acquisitions, it would look at oilfields rather than its rivals. Tullow gained 8p to 1239p while BP lost 3p to 597.2p.

Banks were better after Standard Chartered unveiled record profits (business as usual for the bank) and as investors turned to more risky punts.

The Asia-focused bank shot up 37½p to 1628p as analysts also applauded a decline in impairments.

Lloyds Banking Group put on 1p to 52½p, Barclays climbed 5.1p to 327p and Royal Bank of Scotland was 0.3p better at 38p. Ian Gordon, banking expert at BNP Exane Paribas, predicted that City forecasts for Standard Chartered's profits this year may now be raised.

He said: "With a robust outlook statement guiding to January 2010 income and profits ahead of the record January 2009, we see little likelihood of any downgrade to our estimates, and we would expect consensus to move up."