Market Round-up: City in a lather as rumours on bid for Barratt gain a foothold

Rosamund Urwin
10 Mar 2010

The City's rumourmongers were busy today, but it was bid talk for Barratt Developments that had them most excited.

Shares in the housebuilder shot up 5.8p to 121.2p on speculation that the group could soon receive a takeover approach.

Larger rival Persimmon was most widely tipped as the possible suitor, with a price of 170p a pop being named.

But even wilder talk had a private equity house as the possible predator, attracted by Barratt's perceived low valuation.

The sensible heads in the Square Mile were sceptical, however.

“Dafter things have happened, I suppose, so never say never,” one housing analyst said. “But Persimmon bidding for Barratt would be an act of insanity as it would open a can of worms about its own value. And how would they possibly persuade the City to issue the equity or banks to issue the debt? As for other bidders, the time to make an approach to this company was two years ago – not now.”

One trader agreed, dismissing the talk as “a bit spivvy.” But investors seemed keen on the story, with 10 million Barratt shares changing hands by lunchtime, against a daily average trade of nine million.

Shares in London were just in positive territory, as gains from the mining titans offset losses from much of the financial sector. The FTSE 100 put on 8.22 points to 5610.62.

It wasn't just Barratt which had was attracting takeover talk. Nightclubs owner Luminar reversed early losses to trade ½p higher at 37p amid rumours that a private equity house may be eyeing up the owner of the Oceana club in Kingston and the Lava & Ignite chain. The potential suitor was said to be a venture capital firm with experience of running pubs.

Back on the top flight, speculation that Barclays is on the prowl in the US sent the bank's shares down 4.8p to 341p. The John Varley-run bank is said to be considering buying an American retail bank to increase its presence on the stateside High Street. Barclays is said to be hoping to build on its takeover of the North American arm of Lehman Brothers in 2008.

On the mid-tier, Shanks Group recovered some of yesterday's hefty losses amid speculation that the waste-disposal group could attract a fresh bid. Shanks's shares plunged by a fifth yesterday after rejecting a £476 million takeover offer from Carlyle Group and ending talks with the private equity house.

But two of the City's big-hitting brokers — Goldman Sachs and JPMorgan Cazenove — said today that further merger and acquisitions activity should not be ruled out for Shanks in the coming months. Goldman is advising clients to buy the shares, believing that they were oversold and that business should pick up in Shanks's key markets. They have set a 159p price target for the shares, which today rose 6.4p to 108.6p.

Manufacturing investor Melrose was also on the rise after strong results. The company said that it was not planning another shopping spree in the immediate future but would take time over its next purchase. Melrose snapped up crane and cable maker FKI for £1 billion a year-and-a-half ago. Shares in the FTSE 250-listed group gained 12.2p to 205p.

But it was Tullett Prebon which claimed first place, up 52¼ at 362½p, after the inter-dealer broker revealed that it had received a bid. Macquarie Group and Bank of China were the candidates being touted as potential suitors but there was also some speculation that GFI, linked with the company in the past, could have been behind the approach.

The move on Tullett also sparked interest in FTSE 100-listed rival Icap, which was the biggest winner on the top tier, up 15p at 369.6p.

JD Wetherspoon rose 32.3p to 500p ahead of its first-half results tomorrow when the pubs owner may say it has successfully refinanced its bank debt.

Mark Brumby, leisure analyst at Astaire, is a fan of the company. “JD Wetherspoon is selling the right products to the right customers from the right units at the right prices,” he said, advising clients to buy the shares.

Brumby believes there should be little difficulty with the refinancing: “With banks keen (in fact compelled) to lend to good covenants, why would [Wetherspoon] not find the process relatively easy?” Wetherspoon has fared better during the recession than most of its peers, thanks to its cheap food and drinks.