LONDON (Reuters) - A £64 billion bid for drug maker Shire and a fresh £22 billion offer for Sky failed to lift the UK stock market on Wednesday as worries about rising U.S. bond yields and corporate costs continued to weigh on global markets.
Britain’s blue chip FTSE 100 closed down 0.62 percent at 7,379.32 points, broadly in line with other European markets and Wall Street where warnings by top U.S. firms about rising costs fuelled worries corporate earnings may have peaked.
A rise in U.S. 10-year treasury yields to 3 percent is driving fears of higher borrowing fees for companies which have thrived in a low-interest rate environment and could also encourage investors to dump shares for safer government bonds.
Sky shares were the top performers of the session after U.S. media group Comcast submitted a 22 billion pound($30.7 billion) bid, prompting the European pay TV group to drop its support for a lower offer from Rupert Murdoch’s Twenty-First Century Fox.
“A bidding war had not been fully priced in, especially with Comcast coming out of the gates with a ‘Sky-high’ 16% premium over the offer from Fox”, Jasper Lawler, head of research at London Capital Group commented.
Rare disease specialist Shire lost 2.6 percent after it said it was willing to recommend a sweetened $64 billion offer from Takeda Pharmaceutical.
The recent fall in its Japanese suitor’s shares make the overall offer, comprised 21.75 pounds per share in cash and 27.26 pounds in new Takeda shares, less attractive.
“Shareholders in Shire are likely to be a little concerned about getting a 50% stake in a company which has seen its share price nosedive in the last few months and which could well be worth considerably less by the time any deal is concluded”, said CMC Markets analyst Michael Hewson.
“Shire shareholders would give their right arms to be in Sky’s position – two strong US firms chasing it”, Chris Beauchamp, a market analyst at IG, also commented.
In the pharmaceutical sector, GlaxoSmithKline shares lost 3.6 percent. It reported a 2 percent fall in sales and earnings held back by a stronger pound and more pricing pressure in respiratory medicine.
Whitbread shares got an initial boost after announcing the spin-off of Costa Coffee - a move long sought by activist investors - but then retreated, closing 0.2 percent down on the day.
The tobacco sector was one of the only other areas trading in positive territory with Imperial Brands up 3.5 percent and British American Tobacco rising 2.8 percent.
UBS analysts said that 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 a large number of launches set for the end of the third quarter.
Britain’s Lloyds Banking Group lost 1.7 percent after slightly missing expectations for pre-tax profits but Jefferies analysts 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.
Lloyd also said it would not cancel its preference shares following investor complaints about the possibility after insurer Aviva abandoned its plans to scrap the high-yielding shares.
Reporting by Julien Ponthus; Editing by Matthew Mpoke Bigg