VODAFONE GROUP and mmO2 traded in opposite directions as short-term investors switched out of the former BT Cellnet and into Europe’s largest mobile operator.
Credit Suisse First Boston points out that shares in mmO2 have rallied 8 per cent during the past two weeks, which it pins on this month’s expiry of the cooling-off period from KPN of the Netherlands. Under Takeover Panel rules, the Dutch carrier was precluded from renewing its interest in the UK operator until six months after it ruled out making a bid in February.
However, the Swiss broker still believes a fresh approach is unlikely, citing the demands of KPN’s €1 billion share buyback programme and mmO2’s previous insistence that it would entertain only a cash offer. It also suggests that increasing competition in the UK and Dutch mobile markets makes a takeover less likely in the short term.
Instead, CSFB advised clients to book profits in mmO2, which dipped 1p at 91½p, and switch into Vodafone Group, 1¾p dearer at 128¼p. But Vodafone also got support from Dresdner Kleinwort Wasserstein, which cited Vivendi’s favourable ruling on the tax treatment of its 56 per cent interest in SFR, the French mobile operator. The legal decision means SFR will continue to pay 100 per cent of its tax obligations, but that Vivendi will be able to recoup 56 per cent itself by offsetting it against €12.2 billion of historic operating losses.
Robert Grindle, Dresdner’s telecoms analyst, believes that the ruling means it is less likely that Vodafone, which holds the remaining 44 per cent, will make an oft-mooted move on SFR. He says SFR is now more valuable to Vivendi — to the tune of €2.5 billion — and accordingly increases the acquisition price to Vodafone. At the same time it makes it harder for Vodafone to justify the benefits of a tie-up.
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The wider market put in a strong performance with the covering of short position helping the FTSE 100 to advance 42.3 to 4,453.9.
GlaxoSmithKline gave additional weight to the rally, up 27p at £11.31 after reaching a $2.5 million settlement with Eliot Spitzer, the New York attorney-general. But drug investors were also encouraged by increased profit forecasts from Deutsche Bank.
Following Monday’s successful defence by GSK of its US patents on Zofran, a treatment to prevent nausea in chemotherapy patients, Mark Clark, analyst, has raised his 2005 and 2006 earnings per share forecasts by 3 per cent and 5 per cent respectively, claiming the company can now look forward to two years of solid profit growth.
Tesco rose ½p at 267p amid reports from Malaysia that it plans to open five hypermarkets there next year, a significant increase from the one or two expected by analysts.