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UK Equities
InterContinental higher on urge to merge
From the Financial Times of Thu, 18 Dec 2014 19:18:29 GMT

A retread of sector consolidation theories helped put InterContinental Hotels on the London market leaderboard on Thursday.

With InterContinental’s sale of its owned properties in effect complete, the hotelier now needs to buy or be bought, argued Berenberg analysts. They made the case for InterContinental to merge with US peer Hyatt or pursue smaller deals similar to this week’s $430m buyout of Kimpton.

Unless it bulked up, InterContinental “faces the prospect of losing its independence and being the prey for another large operator”, Berenberg told clients. “If the company is to be prey and the transaction is to involve the issue of equity to InterContinental shareholders, we believe that a link with Starwood or Hilton would make the most sense.”

Intercontinental shares added 3.6 per cent to £25.74. “We would expect that an offer of between £29 and £30 per share would secure InterContinental, which implies that its shareholders would receive 70 per cent of the synergies from a tie-up with one of the biggest three players,” Berenberg said.

The Federal Reserve-powered rally in global markets lifted the FTSE 100 by 2 per cent or 129.52 points at 6,466.00. Emerging markets-reliant stocks led the way, with Old Mutual rising 5.7 per cent to 189.9p and SABMiller ahead 5.9 per cent to £33.75.

Chip designer Arm Holdings gained 4.9 per cent to 975.5p having hosted a conference call to discuss Chinese smartphone trends. A migration in China to 4G networks and higher-powered chips means Arm’s 2015 royalty revenues may rise 25 per cent next year, versus 20 per cent expected by the consensus, said Exane.

Weir, the pumpmaker, rose 2.2 per cent to £18.70. At a site visit to its oil and gas headquarters in Texas, Weir management stressed that the company has several plans in place to respond to the coming slowdown in fracking equipment demand.

Aveva, the designs software maker for shipbuilders, lost 5.6 per cent to £12.55. Its exposure to the oil industry led both Morgan Stanley and JPMorgan Cazenove to cut ratings.

With offshore companies turning more cautious on new investments, Aveva “may struggle to deliver” second-half consensus forecasts for revenue and profit, said JPMorgan. It estimated that between 70 and 80 per cent of Aveva’s revenues were directly or indirectly exposed to the price of oil.

Pendragon, Britain’s biggest car dealership, gained 3.2 per cent to 32p amid a revival of bid speculation.

Gossip has been circulating for about a month that Pendragon has been approached over a potential takeover at up to 50p per share, which would value the company at about £670m. But Pendragon shares have held to a tight range this year in part due to their lack of liquidity, with Odey Asset Management and Schroders together holding about 31 per cent of the group.

Power station owner Drax lost 3.4 per cent to 446.3p. Citigroup cut its target price to 500p citing a weak outlook for UK power prices.



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