FTSE in-depth: Carlyle rumour boosts Shanks

By This Is Money
Updated: 03:18 EDT, 23 September 2010

Where there's muck, there's brass, the old saying goes. Nowhere was that truer than in the case of waste management group Shanks, which saw its stock spike on rumours of a renewed bid by US buyout giant Carlyle.

Tracking markets: Overall it was another topsy-turvy day on the markets.

If you think we've been here before, we have. Carlyle approached Shanks late last year with a 135p-a-share bid for the Milton Keynes rubbish-to-recycling specialist.

One profit warning later, Carlyle dropped its tender to 120p and Shanks walked away, causing its shares to settle back sleepily to their natural resting place of around the 100p mark.

Now, it seems, the locusts have returned with - if the rumours are to be believed - a new and juicier offer on the table at between 135p and 150p a share, valuing Shanks at just shy of £600m.

News of Carlyle's redoubled interest sent Shanks' shares soaring - gaining 10% at one point before closing 6.7p higher at 110.2p. 'Expect more to come,' said one analyst, who suggested that the stock could climb beyond 130p in the coming days.

Shanks' story is compelling. It is well run: it posted a 3p dividend in the year to the end of March, up from 1.7p the previous year, while cutting net debt by 20pc to £338m.

Europe's biggest waste manager is also geographically diverse, with a tangle of operations across Britain, Belgium, Canada and the Netherlands.

Noted one analyst: 'Private equity would be an obvious buyer. Shanks doesn't have many direct rivals, and it's in a growth industry. Waste disposal isn't going to see much in the way of government cutbacks, so it's a good industry to be in.'

Takeover rumours also swirled around Independent Resources, an oil and gas minor with interests in Italy and northern Africa.

Investors may be wrong on this one - they sometimes are - but the market clearly expects a deal to be struck sooner than later. Around 880,000 shares changed hands, against a usual turnover of 15,000, pushing its stock up 15p to 90.5p.

Another oil minor, North Sea-focused Deo Petroleum, suspended trading in its shares at 110p after announcing the start of discussions aimed at finalising the reverse takeover of a rival energy asset. Deo's announcement only came after its shares spiked 27%, closing 23.5p higher.

Overall it was another topsy-turvy day on the markets. A major sell-off of European stocks - with one leading institutional investor-believed to have offloaded £1.3bn in equities - dragged the Footsie nearly 60 points lower in early trading. But the market pushed back, regaining early losses before closing 24.28 points lower at 5551.91.

Miners had a sparkling day at last, led by Antofagasta, which closed 37p higher at 1214p. Kazakhmys closed 41p up at 1441p, with Randgold adding 180p to 6490p. Rio Tinto gained 82.5p to 3652.5p while BHP Billiton added 41p to close at 2000p.

It was a rather less salubrious day for non-defensive consumer plays. Pearson lost 20p to 995p while advertising behemoth WPP shed 20p to 709.5p. Insurer Aviva was pummelled after going ex-dividend and leading the market lower, closing 20p off at 397p.

Asos, meanwhile, was hit with a double whammy as Morgan Stanley downgraded the Camden Town-based online fashion store - twice. Cutting its rating from 'overweight' to 'underweight' skipping 'neutral' along the way, Morgan warned that the stock now had a higher rating than any comparable internet retailer, Amazon included. It duly advised investors to take profit, pushing Asos down 35p to 1067p.

Weir Group also took a beating, ending 45p lower at 1395p after being downgraded to 'hold' from buy by Royal Bank of Scotland. RBS itself slipped 1.08p to 47.5p while Lloyds Banking Group cheapened 1.05p to 75.85p.

Second-tier energy independents, hardly suffering from a paucity of good news, added more bounce to an already springy step following recent oil and gas finds. Rockhopper gained 10.5p to 508p, while Kurdistan-focused Sterling Energy ended 3.5p higher at 76.5p, partially reversing recent losses.

Cairn Energy, which struck gas earlier this week off the cost of Greenland, had another steady day, gaining 8.5p to 445p after being upgraded to buy from hold by Collins Stewart. The broker also raised its target price to 500p from 420p, stating that investors had failed to fully factor in the sale of its India assets to rival Vedanta Resources.

Analyst Gordon Gray said that by shedding Cairn India, the company would itself become an acquisition target, noting: 'The post-Vedanta structure makes Cairn a much more appealing potential target for the majors.'

Contract food services group Compass saw its shares close down 7p at 535p despite being upgraded by Collins Stewart to 'buy' from 'hold', with a new target price of 632p. Analyst Julian Cater said Compass was benefiting from a 'strong cyclical recovery' and was expected to post 'strong fourth quarter' earnings next week.