Analysts say there is the prospect of a counter bid despite Cairn paying a hefty premium
As markets continue to - cautiously - head higher ahead of an Italian bond auction and Greece's election this weekend, there are signs of life in the takeover world.
Cairn Energy has announced the surprise £414m purchase of North Sea oil company Nautical Petroleum, its second acquisition in the region as it tries to spread the risk of its Greenland projects.
The company is paying 450p for each Nautical share, pushing its target's shares 162.25p higher to 460p. Cairn itself is up 2.4p at 294.3p.
After struggling in Greenland and selling the bulk of its Indian business to Vedanta Resources, Cairn is attempting to build up an oil producing business, and to this end bought Agora Oil and Gas in April. Simon Thomson, Cairn chief executive, said:
This acquisition is another step towards building a balanced portfolio of transformational exploration, appraisal and development assets, and complements our recent acquisition of Agora to help build a platform in North West Europe.
Cairn has acceptances representing 27.25% of Nautical, but despite paying a hefty premium, analysts believe a rival bid cannot be ruled out. Nick Copeman of Oriel Securities said:
Cairn is clearly attracted to the Catcher licence and the prospective of further reserves and resource increases post further exploration and appraisal. It also gives Cairn a 25% stake in the Kraken development project, 6% in the Mariner oil field and a 100% (Enquest 50% option) in the Ketos prospect.
We had a risked net asset value for Nautical of 435p a share, so we don't see Cairn as overpaying and, if anything, the price may leave the door open for a counter offer.
However Andrew Whittock at Liberum Capital said that Cairn would have to back up its reasons for paying the price it has come up with:
This is a surprise move and Cairn will need to justify premium paid for what looks like a package of developments, rather than exploration. It shows industry sees value in North Sea players – should be good news for Enquest and (less so) Premier Oil.
Overall the FTSE 100 is up 22.05 points at 5495.79, despite investors' continuing caution about the eurozone. Hopes of central bank intervention helped lift sentiment. Markus Huber at ETX Capital said:
Continuing general optimism that central banks around the world not only in Europe but in the US and China too will once again come to the rescue soon is providing ongoing support and stability to European equity markets in early trading today.
While none of the major central banks is necessarily eager to rush into any kind of intervention like cutting rates or purchasing bonds as this might be seen as a panic reaction, which could easily have the opposite of the desired effect, in the end with the global economic outlook deteriorating fast and periphery bond yields continue to surge there might be soon no other choice left then to act in a swift and decisive manner before the situation gets even more out of control.
The index was helped by the fact that, for a change on a Wednesday, no FTSE 100 company was trading ex-dividend.
J Sainsbury was a notable faller, down 7.3p at 283.8p after its first quarter sales came in below expectations, despite a boost from the Jubilee celebrations. Freddie George at Seymour Pierce said:
The first quarter trading to 9 June, which includes the bumper Diamond Jubilee week, was positive but weaker than market expectations. Total sales were up by 3.6%, including like for like growth of 1.4% against a consensus, we believe of over 2%.
