Market report: Tuesday close

By MICKEY CLARK FOR MAILONLINE
Updated:

 

THE City appears to have gone cool on Banco Santander's £8.1bn bid for mortgage lender Abbey National.

Today, shares in Abbey rallied 10p to 567p, but that only reflected a similar rise in the Spanish bank's shares, which touched e7.87 in Madrid, valuing the terms of its all-share offer at 550p, including the dividend. But brokers are far from pleased with these terms.

Broker CSFB is telling clients to reduce holdings in both banks and is sceptical about another bidder emerging. It does not think Abbey shareholders will want to retain Santander's paper and expects the value of the offer to decline as the deal proceeds to conclusion.

Rival broker Teather & Greenwood agrees. It says the offer consists overwhelmingly of shares in a bank that not all current Abbey investors will want to own. Selling now will provide the best exit route, it adds.

But Santander's bid has challenged conventional wisdom about the viability of cross-border consolidation among European banks and could boost the lowly prices of other UK lenders.

Share prices generally nudged higher, having struck a nine-month low yesterday. The FTSE 100 index rose 37.90 points to 4324.90 as Wall Street made a strong start. A report that showed increasing consumer confidence helped lift the Dow 68.36 to 10,030.28 at the halfway stage. The Nasdaq composite index was up 12.81 at 1,851.83.

Back in the UK, investors continued to reflect on last week's better-than-expected half-year profits at drugs giant AstraZeneca, which rose 40p to 2420p. US broker Smith Barney has upgraded from hold to buy and raised its 12-month target from 2,700p to 2,800p.

Mining powerhouse Rio Tinto rose 17p to 1341p after a line of 15m shares went through at 1336p. Eurotunnel was the worst performer among second-liners, falling a further 2 1/2p to a new low of 17 3/4p, reflecting its worsening finances. The debt-laden cross-Channel link operator yesterday reported a wider half-year loss of £82m, with new management still to produce a revival strategy.

Supermarkets chain Tesco firmed 2 1/4p to 253 3/4p. Broker Dresdner Kleinwort Wasserstein has raised it from hold to buy and lifted its target from 250p to 270p.

Full marks to French construction group Vinci, which last week sold its remaining 10.12% stake in Luton and Cardiff airports operator-TBI. Today, TBI retreated 1 1/4p to 65p after issuing a profits warning following the decision of struggling package tour operator MyTravel to cut the size of its aircraft fleet. This will result in a reduction of around one-third of Cardiff Airport's international charter business and a shortfall in profits of about £600,000 for the year to next March.

Analysts had been looking for profits of around £27m in the current year but today's alert is expected to knock £2m off forecasts for £30m in the year to March 2006.

Discount retailer Matalan nudged back towards its high for the year, up 4 1/2p to 207 1/2p after a line of 925,000 shares went through at a shade under 200p.

Talk in the Square Mile is that US retailer Wal-Mart, which already owns Asda, has expressed an interest. There has been a lot of takeover talk and it is thought founder-chairman John Hargreaves may now sell his 52% stake.

Moss Bros added a further 1 1/2p to 83 1/2p. Retailer Kevin Stanford confirmed he had raised his holding to 28.1% after buying Shami Ahmed's 22.6% stake.

It was the first day on Aim for Victoria Oil & Gas following a placing of 48.9m shares at 20p. The shares began at 23 1/2p before touching 26 1/2p.


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