Shire helps keep FTSE 100 afloat on bid speculation

Tue Jun 17, 2014 12:19pm EDT

* FTSE 100 up 0.2 pct; Shire top riser

* Whitbread rallies after strong update

* Proposed store management shake-up buoys Morrisons

* Lloyds up; raises minimum price for TSB listing-sources

* Ashtead drops 6.3 pct as traders take profits

By Tricia Wright

LONDON, June 17 (Reuters) - Bid speculation around drugmaker Shire and proposed cost savings at supermarket operator Wm Morrison helped lift Britain's top share index slightly on Tuesday.

A strong update from Premier Inn-owner Whitbread also supported the market but weakness from BT, on persistent concerns about a large increase in its pension deficit, and a post-results drop in equipment rental firm Ashtead, limited the FTSE 100's progress.

Shire jumped 3.5 percent, providing the biggest boost for the FTSE 100, after sources told Reuters the healthcare group has hired investment bank Citi as an adviser, expecting to receive takeover approaches.

"We've been buyers of Shire recently and on the back of this we'd look to add to positions," said Manoj Ladwa, the head of trading at TJM Partners.

Healthcare companies have seen a wave of merger and acquisition speculation in the past two months. Shire has been tipped as a possible target partly because of its tax base in Ireland, where effective corporate tax rates are among the lowest in the world. The stock has risen around 30 percent since mid-April.

"You've got at least a third of the value of any bid priced in, but I think you've still got a fair amount of upside potential even if you buy at this sort of level," TJM's Ladwa said. He said the stock, now trading at about 36 pounds ($60.5) per share, could hit 50 pounds if a bid materialises.

Shire added 2.9 points to the FTSE 100, which closed up 12.13 points, or 0.2 percent, at 6,766.77 points.

The second-best riser was Morrisons, up 2.3 percent after it proposed changes to its store management that would lead to around 2,600 redundancies.

Morrisons, which issued a profit warning in March, has seen its shares lose 26 percent of their value this year.

"I think you'll see bargain hunters stepping in ... They've had problems, there's obviously a big management reshuffle and a redesign - and the market's seeing that as a positive," said Ed Woolfitt, the head of trading at Galvan. He reckons the shares will move back to around 240 pence, the 200-day moving average. They now trade about 193 pence.

Whitbread, Britain's biggest hotel and coffee shop operator, reported a robust start to the year, driven by strong growth at its Premier Inn hotels. Its shares rose 2.2 percent, making it the third top riser.

Lloyds Banking Group, meanwhile, advanced 1.7 percent. Lloyds has narrowed the price range for the sale of a 25 percent stake in TSB to between 250 pence and 270 pence, sources familiar with the matter told Reuters.

The FTSE had fallen in three of the previous four sessions, pressured by geopolitical concerns ranging from violence in Iraq to tensions between Russia and Ukraine, as well as speculation that the Bank of England will tighten policy before year-end.

The index briefly extended its gains on Tuesday after British inflation fell more sharply than expected in May, giving the BoE some room to keep interest rates near record lows.

Ashtead shed 6.3 percent despite seeing a 50 percent rise in full-year pretax profit, beating its guidance, and expressing confidence a pick-up in U.S. and British construction would help deliver more growth in the next three to five years.

Traders remained bullish, seeing little reason for such a sharp pullback in the share price - which nonetheless has jumped some 40 percent in the last 12 months.

BT shares closed down 0.6 percent.

($1 = 0.5956 British Pounds) (Additional reporting by Francesco Canepa; Editing by Susan Fenton)