Market Report: Shire fizzes higher on Pfizer bid speculation

The pharmaceuticals company Shire, a perennial target of takeover talk, was buoyed by renewed bid speculation yesterday. The US drugs giant Pfizer was reported to be considering a £13-per- share offer for its smaller British peer. Investors were excited and Shire's stock soared to an early intra-day high of 1,035p – an increase of 92p, or almost 10 per cent, on Thursday's closing price.

Cazenove, which maintains an "in-line" recommendation for the stock, noted: "With larger industry players such as Pfizer facing a significant sales gap in the next few years, we see bid speculation surrounding the mid-cap companies as likely to continue. Shire has an interesting pipeline with its Human Genetic Therapies (HGT) franchise expected to provide nearly 30 per cent of sales by 2011."

The broker also underlined the success of the drug Vyvanse, Shire's treatment for attention-deficit hyperactivity disorder, which has "arguably been a success, gaining 6 per cent of total ADHD prescriptions to date since its launch in summer 2007", according to Cazenove.

Of course, the market as matchmaker is often unreliable. The bid talk, one trader noted, was not new and both AstraZeneca and GlaxoSmithKline have previously been touted as potential suitors. Indeed, sources close to Shire noted that the company was unmoved by the speculation. Its director of corporate affairs is off on holiday, The Independent was told. Investors, who took Shire's stock up by 4.98 per cent or 47p to 990p, must be wondering if he is heading to New York, the location of Pfizer's headquarters.

Following news of fresh banking woes, the bears were rampant on the FTSE 100, which closed down 60.7, or 1.1 per cent, at 5,631.7. The London benchmark remained firm in the morning but soon slid into the red following reports of problems at Bear Stearns, the US investment bank, which has sought emergency funding from JP Morgan Chase and the Federal Reserve Bank of New York.

The FTSE 250 was also depressed, shedding 95.4 , or 1 per cent, to 9706.1.

Predictably, growing concerns about the credit market weighed heavily on the British banks. HBOS, which has often been the subject of worrying rumours of a sudden writedown, was the worst off, down 6.05 per cent, or 34p, to 528p. Others in the sector were also depressed. Barclays lost 3.94 per cent, or 17.75p, to close at 433p, Royal Bank of Scotland fell 2.48 per cent, or 8.5p, and ended on 333.75p, Lloyds TSB lost 2.03 per cent, or 8.75p, to 421.25p, and Standard Chartered closed down 18p at 1,606p, a fall of 1.11 per cent.

In the mining sector, shares in Xstrata rose on the back of fresh speculation about a deal with Vale, the Brazilian mining group, which has been working on a takeover offer for the company. Market sources said Vale had already, or was close to, winning the assent of Glencore, a major share holder in Xstrata. The talk also suggested a deal could be announced as early as this weekend, or in the first few days of next week. Xstrata climbed by 0.43 per cent, or 17p, to 3,938p.

The rival mining giants Rio Tinto, which climbed by 2.22 per cent, or 120p to 5527p, and BHP Billiton, which gained 3.65 per cent, or 56p, to 1590p, also had a good day. Lehman Brothers cast the two companies as its top picks in the sector.

Supermarkets, on the other hand, suffered after Goldman Sachs said: "A near-stagflationary outlook is an increasing negative for the food retailers and different to the positive impact that mild inflation tends to have on the sector." Goldman downgraded Tesco from "neutral" to "sell", sending its shares down by 3.43 per cent, or 13.50p, to 380.25p. Morrisons shares fell by 3.88 per cent, or 11.25p, to 278.50p after its rating was lowered from "buy" to "neutral". Sainsbury, which was removed from Goldman's "conviction buy" list, was hurt too, losing 3.90 per cent, or 13.25p, to close at 326.35p.

On the FTSE 250, Benfield, the reinsurance and risk intermediary which slumped after disappointing results on Thursday, rose again as investors went hunting for a bargain. They helped the company to weather some negative broker coverage from UBS, which reiterated its "sell" stance on the stock. Benfield's shares closed at the top of the FTSE 250 leaderboard, gaining 7.37 per cent, or 17p, to 247.75p.

Bargain-hunters also helped the gaming company Rank, which was suffering post-Budget depression after the Chancellor failed to remove VAT from bingo charges and raised the duty on amusement machine licences instead. Rank's shares rallied by 4.50 per cent, or 3.75p, to close at 87p.

On the AIM, the online direct marketing specialist TMN rose after saying that, following an approach by Tangent Communications this week, it had been contacted by "several parties expressing interest in acquiring the company". TMN's shares rose by 8.82 per cent, or 4.5p, to 55.5p.