P&O shares soared to a record high amid investor expectation that the Port of Singapore Authority (PSA) was preparing a takeover bid worth more than £4 billion for the UK ports and ferries group.
PSA was not commenting on the speculation yesterday but has two weeks to decide whether to remain in the race. The Singaporean state-owned entity made its long-awaited entry on Thursday with a £3.5 billion cash bid that valued P&O shares at 470p. Dubai Ports World, which started the bidding war with a 443p bid two months ago, hit back on Thursday night with a 520p offer that values P&O at £3.9 billion.
In addition, P&O has given DP World a commitment that effectively gives PSA only until February 13 to launch an improved offer or risk being frozen out of the bid race.
Analysts have already suggested that a successful takeover bid could value P&O at 550p, although traditional valuation models are being ignored because of the deep financial pockets of both PSA and DP World. DP World’s latest offer already values P&O at more than 30 times its prospective 2006 earnings. Investors yesterday responded to the improved DP World offer, and expectations of a PSA return, by marking P&O up 25p at 547p.
The FTSE 100 soared to a four-year high and edged closer to the 5,800 level, as cross-border merger activity excited trading floors. With last Friday’s 2 per cent fall in the Dow Jones industrial average seemingly forgotten, the large cap index closed up 64.2 points at 5,786.8.
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Trading in Lloyds TSB shares was particularly strong on renewed talk that Wells Fargo, the American bank, is running its slide rule over the bank. Lloyds TSB shares rose 5¾p to 516½p.
BOC firmed 30p to £14.90 after Rob Margetts, the chairman, defended his board’s swift rejection of a £7.6 billion takeover approach from German rival Linde. Speaking after BOC’s annual meeting, Mr Margetts said that his board had the support of institutional shareholders, who also believed that Linde’s highly conditional approach, at £15 a share, undervalued the British company.
Oil stocks were also in demand as crude prices helped to fuel BP, 11p higher at 665½p, and Royal Dutch Shell, up 32p to £19.60, ahead of trading updates. JPMorgan highlighted both oil groups as top picks, ahead of BP’s trading update on February 7 and Royal Dutch Shell’s update next Thursday.
Sage Group continued to make headway as Microsoft’s second-quarter numbers suggested an improving business software market. It also emerged that Capital Group Companies, America’s third largest fund manager, has topped up its stake from 4.99 per cent to 5.05 per cent. The shares ended up 10p at 274p.
Tate & Lyle fell 15½p to 573½p as Merrill Lynch downgraded the stock from “neutral” to “sell”, raising concerns over the company’s ability to increase its prices in 2006. Analysts said they now expect price rises to be in the high single digit range, against their previous forecast of a 15 per cent rise.