GALLAHER retreated further from last week’s high amid speculation that Japan Tobacco may use today’s third-quarter results to play down hopes of a bid for the Silk Cut and Benson & Hedges cigarette maker.
Ever since the Japanese giant expressed an interest in making European acquisitions in August 2003, Gallaher, now valued at £5.4 billion, has been routinely cited as a potential target. With JT’s chief executive, Pierre de Labouchere, due to accompany today’s presentation in Tokyo with an update on the company’s international strategy, followers of Gallaher fear any non-commital noises on takeovers could pull its shares lower. That was the line taken yesterday by Lehman Brothers, which thinks that Gallaher is more likely to return to beneath 800p than move above 900p without firmer evidence of an immediate bid. Christopher Wickham, an analyst, also believes Gallaher’s cost base does not make it an easy target for synergies.
With the US broker repeating its underweight recommendation and citing Gallaher’s vulnerability to correction, the shares eased 5p to 825½p.
But bid hopes were evident elsewhere in the FTSE 100, up 4.2 points at 5,057.2. J Sainsbury advanced 8p to 302p, a 12-month high, amid rumours that the food retailer’s board is convening to consider an offer. Last week’s mooted buyer was Target, the US retailer, although yesterday’s tale gave fresh weight to oft-repeated suggestions that Allan Leighton, the former Asda chief executive, is seeking private equity backing for a leveraged buy-in.
Elsewhere, mmO2 put on 4¼p at 129¾p. Aside from the interest created by this week’s GSM Congress in Cannes and Deustche Bank’s raised 150p target earlier this week, dealers pointed to the positive signal from the auction of Wind, the Italian mobile operator. According to reports, Blackstone, the US private equity firm, has tabled an offer of more than €12 billion.
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Corus Group put on 2p at 62p on a restructuring of its operations in Cumbria and reassuring full-year results from Arcelor, the world’s second-largest steelmaker.
ScottishPower lost 4p to 433½p as the power generator’s PacifiCorp subsidiary put in a request to the Utah regulator to increase its tariffs by $51 million, against $96 million previously. Although Dresdner Kleinwort Wasserstein believes the impact on the generator’s valuation is minimal, it thinks the lower rate, if approved, may weigh on investor sentiment.
Smith & Nephew eased 1½p at 543p, despite the declaration that Pamela Kirby, a non-executive, has purchased 5,000 shares at 543½p.