A £64 billion bid for drug maker Shire and a fresh £22 billion offer for Sky failed to lift the UK stock market yesterday as worries about rising US bond yields and corporate costs continued to weigh on global markets.
Britain’s blue chip FTSE 100 closed down 0.62 per cent, broadly in line with other EU markets and Wall Street, where warnings by top US firms about rising costs fuelled worries corporate earnings may have peaked.
A rise in US 10-year Treasury yields to three per cent is driving fears of higher borrowing fees for companies which have thrived in a low-interest context and could encourage investors to dump shares for government bonds.
Sky shares were the top performers of the session after US media group Comcast submitted a £22 billion bid, prompting the European pay TV group to drop its support for a lower offer from Rupert Murdoch’s 21st Century Fox. “A bidding war had not been fully priced in, especially with Comcast coming out of the gates with a ‘Sky-high’ 16 per cent premium over the offer from Fox,” Jasper Lawler, head of research at London Capital Group said.
Rare disease specialist Shire lost 2.6 per cent after it said it was willing to recommend a $64 billion offer from Takeda Pharmaceutical. The recent fall for its Japanese suitor make the overall offer, £21.75 per share in cash and £27.26 in new Takeda shares, less attractive. “Shareholders in Shire are likely to be a little concerned about getting a 50 per cent stake in a company which has seen its share price nosedive in the last few months,” said CMC Markets analyst Michael Hewson.
In pharmaceutical sector, GlaxoSmithKline shares lost 3.6 per cent. It reported a two percent fall in sales and earnings held back by a stronger pound and pricing pressure in respiratory medicine.
Whitbread got a boost after announcing the spinoff of Costa Coffee – a move long sought by activist investors – but retreated, closing 0.2 per cent down.
Tobacco was one of the only other areas trading in positive territory, with Imperial up 3.5 per cent and British American rising 2.8 per cent. UBS analysts said the latter’s guidance for products such as tobacco heating products would likely reassure the market.
The company said it plans to spend more this year on products such as e-cigarettes, with many third-quarter launches set.
Lloyds Banking Group of the UK lost 1.7 per cent after slightly missing expectations for pre-tax profits, but Jefferies said the earnings figures were unlikely to change the overall picture. “We do not see consensus estimates moving either way post today’s release,” they wrote.