Vodafone bid talk hoists FTSE back towards 2013 highs

Tue Apr 2, 2013 12:10pm EDT

* FTSE closed up 1.2 percent

* Vodafone gains on talk of Verizon, AT&T bid

* ICAP boosted by NASDAQ/eSpeed deal

* Banks up after U.S. judge dismisses misselling claims

By David Brett

LONDON, April 2 (Reuters) - Britain's top shares closed sharply higher on Monday as a return of M&A fervour, after heavyweight Vodafone was reported to be the subject of a multi-million pound breakup bid, helped propel shares back towards 2013 highs.

Vodafone rose 2.9 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.

"Although much of the news is now in the share price, Tradenext ... will continue to add on any dips. Any inkling of a bid from Verizon will almost certainly drive the shares above 200 pence," Ronnie Chopra, head of strategy at Tradenext, said.

Vodafone's shares are up around 20 percent in 2013 on persistent M&A talk. Its weighting accounts for around 6 percent of the entire FTSE 100 and the company's shares added nearly 10.5 points alone to the index on Tuesday.

London's blue chip index closed up 78.92 points or 1.2 percent at 6,490.66, approaching the 6,533.99 level reached in March, which was this year's intraday high and its highest level since January 2008.

Interdealer broker ICAP, hit hard by a recent profit warning, rebounded 6.1 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.

British airways owner IAG, which is in talks to buy Spanish budget airline Vueling, climbed 2.9 percent, while Britain's No.4 grocer Wm Morrison Supermarket, which is seeking a tie-up with Ocado, added 2.5 percent.

"I do not think there is an M&A premium in the market at the moment, but (if M&A picks up) ... that (bid premium) could push the market even higher," said James Humphreys, senior investment manager at Duncan Lawrie Private Bank.

EQUITIES IN VOGUE

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.

"The year has begun with a bit of a bang as far as equity markets are concerned. Though the strength of returns has caught many investors out, the small number of negative days has broadly been seen as opportunities to buy," Ian Heslop, portfolio manager at Old Mutual Global Equity Fund, said.

The FTSE 100 climbed again after a peak-to-trough fall of 2.3 percent towards the end of March on concerns over contagion within Europe.

Heslop said the next leg of the rally would be hard to call, but after many years of bond markets having all the headlines, the market may now be seeing the beginning of a period when equities are once again "cool".

"No one wants to win the least ugly contest, but that may be where we are with equities, that they are benefiting from being somewhat more interesting than other investment opportunities," he said.

A JP Morgan Private Bank survey showed European high-net worth individuals are betting stocks will outperform all other asset classes this year and plan to increase their positions.

After a brief pause on European debt worries the banks found firmer ground, up 1.6 percent and supported by a potential weight on their earnings outlook being lifted.

Potential losses from private lawsuits related to interest rate-rigging could be materially lower after a U.S. judge dismissed a large portion of such claims.

And there could be more gains for the FTSE 100, despite being near five-year highs, as short interest gets squeezed out of the market.

(Reporting by David Brett; editing by Stephen Nisbet)

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