Afternoon:
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Friday 12 September - afternoon update
The odds on Anglo-Swiss mining giant Xstrata going ahead with its £5 billion bid for Lonmin appear to be lengthening by the day, warn traders.
Shares of Lonmin rallied 69p to 2998p along with the rest of the mining sector today, but they continue to trade at a significant discount to Xstrata's offer of 3300p a share. Even the speculators concede that Xstrata's offer is now looking exceedingly generous following the news that Aquarius Platinum, up 26¾p at 414½p, has pulled out of the bidding for Lonmin.
Liberum Capital says there is now little chance of a new white knight, such as BHP Billiton, up 67p at 1472p, emerging. It reckons the chances of Xstrata, 126p dearer at 2401p, walking away from its deal are increasing as market conditions continue to deteriorate. It will be anxious not to be seen to be paying over the odds. The broker estimates that Lonmin is already discounting a 30% to 40% chance that Xstrata will walk away. Liberum says the best-case scenario is where Lonmin's share price falls to its pre-bid price of 2321p.
The price of platinum has dropped 28% since Xstrata first made its move and shares of its bigger rival Impala have fallen 24% to reflect this. Another major platinum player, Amplats, is down nearer 30%. Liberum reckons Xstrata looks a much better bet for investors. Other miners to make headway included Rio Tinto, up 199p at 4357p, Anglo-American, 156p to 2464p, and Eurasian Natural Resources, 4p to 709p.
The rally by miners, following their worst monthly performance in 11 years, helped pull the rest of the market up by its bootlaces. But opening falls on Wall Street this afternoon left London trading below its best levels with the FTSE 100 paring back its lead to 41.2 to 5359.6.
US retail sales fell for the second month in a row during August and the Producer Price Index suffered its biggest drop in almost two years, leaving the Dow off 101 at 11,332.8.
The UK's biggest plumbing equipment supplier, Wolseley, came under fresh selling pressure, down 22p to 444p, after Citigroup downgraded the shares from hold to sell with a target of 310p.
It says its valuation is based on the recent share price rebound. Citigroup reckons the next year, or so, are set to be more challenging than the market expects. The odds on Wolseley calling on shareholders for extra cash appear to be rising.
While Lehman Brothers continued to look around for a suitor to bail it out, banks in London were having a better day. Barclays rose 7p to 345½p, and Lloyds TSB added 2p to 285p. Royal Bank of Scotland put on 4½p at 238¾p ahead of going ex its all-share dividend on Monday. Shareholders will be offered one new share for every 40 they own.
The news that tour operator XL has gone into administration has prompted Dresdner Kleinwort to raise its rating on the big two tour operators TUI Travel, up 13¾p at 235½p, and Thomas Cook, 13¾p dearer at 248¾p, from hold to buy. The removal of excess capacity is seen as a positive move given that the UK market is likely to experience a 20% reduction next year.
Dresdner Kleinwort has slashed its target for soft drinks group Britvic, down 6¾p at 224p, from 420p to 320p following signs of a decline in its Irish soft drinks business, which has been hit by poor weather and a shrinking economy.
Meanwhile, Morgan Stanley has raised its target for Experian, up 9p at 433¼p, from 385p to 470p, but claims the credit rating agency's growth potential has structurally reduced since being spun off from Great Universal Stores. But Experian has indicated it is prepared to return up to £250 million to shareholders by 2010.
Retailers rounded off a miserable weak with further losses. News of losses at French Connection left it off 1½p at 64p, but there were also setbacks for Tesco, down 2.7p at 371.7p, Kingfisher 0.9p at 129.2p, and Debenhams 1½p at 44½p.
