As leading shares fell back once more, software group Autonomy was in demand on vague bid talk and, more tangibly, broker upgrades.
The suggestion was that Microsoft might be contemplating a £28 a share bid, but traders were not convinced by the tale, pointing out that the software giant had already been linked this week with video games group Electronic Arts. Apart from the takeover tales, Autonomy was also lifted by news that Bank of America/Merrill Lynch analysts had raised their price target on the company from £16.60 to £19. This follows recent positive notes from Goldman Sachs and Investec.
Merrill said the market was underestimating the potential for increased earnings from the company during a recovery. It also suggested that communications with the City might improve now the company has appointed an independent chairman alongside chief executive Mike Lynch. Merrill said:
"For a while now we have seen a large divide in the investor base between bulls and bears. Part of the issue is that the company has grown significantly in size but still deals with the capital markets like a small start-up. We believe the recent appointment of an independent chairman (Robert Webb) could address some of the investor concerns by improving the communication and disclosure.
"Some of the bear arguments could easily be discussed with the investment community without creating heated arguments. For example, one argument we hear very often is that Autonomy is just a serial acquirer that focuses on earnings upgrades through acquisitions. However, the long term vision of the management team has always been to create a corporate platform for all unstructured data and so far every acquisition by Autonomy helped it to make this platform vision more compelling."
Autonomy closed 47p higher at £16.10 having touched £16.50 at one point.
Another bid tale doing the rounds involved hedge fund group Man, with suggestions of a bid from US investment group BlackRock. However Man has been surrounded by bid rumours recently, with Barclays another name recently mentioned as a possible predator, and its shares edged up just 0.6p to 304.2p
Overall the FTSE 100 ended 60.10 points lower at 5079.27, undermined by an opening fall on Wall Street after an unexpected fall in US existing home sales. Angus Campbell, head of sales at Capital Spreads, said:
"A second day of selling and once again the FTSE has failed to hold onto gains made earlier in the day. It now looks like the market has decided it's time to pause for thought after putting on tremendous gains since March this year. Whilst the rhetoric from central bankers has been slightly more upbeat, they continue to remain cautious on their outlook for inflation, so in other words they are not expecting a sharp bounce in economic activity and worse still there remains the threat that we could slip back into another recession.
"The selling has been broad based with real estate companies taking the brunt. With the burden of possible rights issues around their necks investors will be apprehensive about buying or even holding onto stocks that are about to make a cash call. Rumours are surrounding real estate companies as being the next to go cap in hand to investors."
Canary Wharf owner Songbird Estates, up 1.03p to 2.35p, has already done that, raising £895m. On the basis that others may follow suit, Hammerson fell 16.1p to 401.4p and Land Securities lost 26p to 649p.
Elsewhere British Airways lost 9.9p to 220p after negative noises from both UBS and Citigroup.
Pubs groups had a mixed day. Mitchells & Butlers lost 9.6p to 274.6p after a trading update failed to inspire investors. But Punch Taverns rose 1.9p to 123.3p as Evolution Securities raised its recommendation on the company from sell to buy, and its target price from 120p to 160p. Enterprise Inns added 0.8p to 133.2p following a buy note from Merrill Lynch. Merrill said:
"We hosted a lunch with chief executive Ted Tuppen and chief finance officer David George of Enterprise Inns. Overall, we found management to be positive on the various issues surrounding the stock. We came away feeling more confident on trading, regulation, debt and property values and believe a rights issue is unlikely."
