Britain's FTSE bolstered by Vodafone bid talk

Tue Apr 2, 2013 7:47am EDT

Related Topics

* FTSE 100 up 1.0 percent

* Vodafone rises on 260 pence-per-share bid talk

* Verizon, AT&T reported as potential bidders for Vodafone

* ICAP climbs on readacross from Nasdaq's eSpeed purchase

* Index gains cautious with FTSE near five-year highs

By David Brett

LONDON, April 2 (Reuters) - M&A expectations helped push Britain's top share index back towards five-year highs by mid-session on Tuesday, with heavyweight Vodafone rumoured to be the subject of a multi-billion-pound breakup bid.

Vodafone rallied 4.2 percent after the Financial Times Alphaville blog cited "usually reliable people" as saying that Verizon Communications and AT&T had been working together on a breakup bid for the British group.

The bid would be pitched at about 260 pence a share, around a 40 percent premium to the current price for Vodafone, the world's second largest mobile operator.

Vodafone's weighting accounts for around 6 percent of the entire FTSE 100 and the company's shares added nearly 17 points alone to the index on Tuesday.

London's blue chips climbed 64.21 points, or 1.0 percent to 6,475.95 by 1137 GMT.

"I do not think there is an M&A premium in the market at the moment, but if companies were to come into the market and say 'we think companies are good value and we want to use our strong balance sheets to make acquisitions', then that could push the market even higher," said James Humphreys, senior investment manager at Duncan Lawrie Private Bank.

Interdealer broker ICAP, hit hard by a recent profit warning, rebounded 7.1 percent after traders reassessed the company's value following a move by U.S. exchange operator Nasdaq to buy rival electronic Treasuries-trading platform eSpeed from BGC Partners.

Valuing ICAP's BrokerTec platform on a similar revenue multiple to eSpeed implies the business is worth about 1.6 billion pounds, equivalent to three-quarters of ICAP's current market cap, Shore Capital said in a note.

"The read-across from this deal is essentially positive for ICAP because it underscores the value inherent in its electronic broking assets," it added.

CAUTIOUS GAINS

A revival in merger and acquisition activity and continued stimulus measures from world central banks helped equity markets rise in early 2013, despite a resurgence of the euro zone debt crisis which saw Cyprus bailed out on tough terms last month.

But investors are becoming more cautious in their asset allocation, with defensive sectors such as healthcare, tobacco and utilities leading gainers in recent weeks as worries about Europe persist.

Humphreys at Duncan Lawrie said defensive sectors continue to offer better relative value than more cyclical plays such as banks, and that he would be buying into good quality companies like credit-checking firm Experian, testing group Intertek and the world's biggest catering firm Compass, in part as protection against a market correction.

European equity funds posted their biggest outflows in more than six months during the week ending March 20 as a threatened levy on all bank deposits in Cyprus raised fears of bank runs in other indebted euro zone countries, EPFR Global data showed.

Central bank stimulus continues to provide support for equities, however, and is helping to drive a slow rotation into the asset class from fixed-income and money market funds, according to JPMorgan strategist Mislav Matejk.

"The asset rotation is likely to provide the underlying bid to the market in the face of potential seasonal volatility. Having said that, we recognise that global equities are sitting on strong six-month gains, and some consolidation would not be unhealthy," he said in a note.

(Editing by Catherine Evans)

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