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Financial Times: Cairn Energy defies oil sector dip by virtue of renewed takeover talk

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Cairn Energy defies oil sector dip by virtue of renewed takeover talk
By Robert Orr andPeter Garnham
Published: February 24 2006 02:00 | Last updated: February 24 2006 02:00
Cairn Energy bucked a falling oil sector yesterday as renewed takeover speculation pushed the oil explorer close to its all-time high.
Cairn shares have undergone a meteoric rise since it discovered oil in Rajasthan, India two years ago. Worth 400p at the start of 2004, the shares touched £19.87 yesterday, giving Cairn a market value of more than £3bn.

The lure of Cairn's reserves means it has long been seen as a target for the likes of Royal Dutch Shell, although the rumour pushing the stock higher yesterday was that Oil & Natural Gas Corp of India, its partner in the Rajasthan field, was ready to pounce.

Finlay Thomson, analyst at house broker ABN Amro, thought that the rumour was wide of the mark, but reiterated his view that Cairn would be bought eventually.
“In an industry so chronically short of reserves, Cairn is a viable takeover target. It is very likely to be taken out at some point,” he said. Cairn shares ended 4.1 per cent higher at £19.57.
Also up on bid talk that has refused to go away was Cable & Wireless, the telecoms group. It rose 2.3 per cent to 110p on strong volumes of more than 100m shares.
Bovis Homes gained 1 per cent to 812p on speculation that it could be the next housebuilder to receive a takeover approach. Redrow, up 0.1 per cent to 550½p, has been mooted as a possible acquirer in a sector where consolidation is expected following Persimmon's deal for Westbury last year.
Body Shop surged 7.3 per cent to 265p as L'Oreal of France confirmed it was considering a move for the beauty products retailer. Eithne O'Leary, analyst at Oriel Securities, said: “Body Shop is a strong global brand and would benefit from the improved execution L'Oreal could bring.
“With investors looking favourably on acquisitions designed to drive growth, this may be a sensible time for L'Oreal to act.”
The wider market was dragged lower by weakness in oil stocks. The FTSE 100 fell 36.4 points, or 0.6 per cent, to 5,836.0 and theFTSE 250 slipped 5.8 points to 9,467.1.
The biggest blue-chip faller was Reuters, off 11.5 per cent at 399½p, even though the news group met expectations with its annual figures. Lorna Tilbian, analyst at Numis Securities, blamed the “absence of upgrades which we believe had been priced in by the market”. Before yesterday Reuters shares had risen 8 per cent in a month.
Shares in BAE Systems, the defence group, lost 5.9 per cent to 421p on concerns about the size of its pension deficit. BAE said it intended to make a sizeable contribution to its pension scheme this year, a move that took the shine off sharply higher annual profits.
Centrica, fell 3.5 per cent to 285¾p in spite of record full-year profits, as the owner of British Gas admitted its decision to pass on rising costs to customers would lead to defections.
Shire rose 3.1 per cent to 902p on hopes that the drugs group can reach a settlement with Barr Pharmaceuticals, the US group Shire is suing over a generic version of Shire's Adderall XR drug, used to treat hyperactivity. “Settlement with Barr remains the key catalyst for share price appreciation,” Morgan Stanley said.
Brambles Industries, the world's biggest supplierof pallets, added 3.2 percent to 419¾p after annual profits beat expectations.
Strong full-year results from Capita Group pushed its shares 3.3 per cent higher to 445p, their highest level for almost four years.
In the mid-caps, Matalan, the discount retailer, rose1.5 per cent to 183½p in spite of some negative sentiment ahead of next week's trading statement.
Nick Bubb, analyst at Evolution, predicted “yet more bad news about trading” and said he expected falling sales to have accelerated since Christmas. John Stevenson, his peer at Shore Capital, was equally gloomy, cutting his rating on the stock from “hold” to “sell”.
Both noted the continued bid speculation surrounding the company – Mr Bubb picking up on talk that John Hargreaves, who owns 53 per cent of Matalan, could be willing to sell at 235p rather than the 300p he was originally thought to be seeking. Private equity groups are rumoured to be interested.
Spirent, the telecoms equipment testing company, lost 5.7 per cent to 49¼p as it slumped to a full-year loss, while Colt Telecom fell 6.9 per cent to 60½p after the business telecoms group announced plans to raise £300m of equity to pay off debt

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