Market Report: Analysts float idea of major brewers merging

Could there be a merger between two of the world's biggest beer companies? That was the question discussed yesterday by analysts who floated the idea of the Belgian giant Anheuser-Busch InBev (ABI) – whose beverages include Budweiser and Stella Artois – making a play for the Grolsch-brewer SABMiller.

Credit Suisse was the broker asking the question, speculating in a note that "the continuing ills of the US domestic beer market... may force ABI's hand to make another acquisition".

"In this scenario," its analysts said, "we think SAB would be the most natural merger partner as SAB would provide strong management talent and a robust emerging markets footprint."

As to whether such a move would fall foul of regulatory bodies, the analysts said the companies "have surprisingly little competitive overlap" and that in countries where they do, the challenges "would be manageable with disposals". Credit Suisse estimated SAB is worth $71bn (?44bn) – or 2,800p-a-share – and it rose 42.5p to 2,099p

Sentiment was strong at the start of trading after the Dow Jones closed on Tuesday in the US at a two-year high, prompting the FTSE 100 to enjoy an early surge. Despite falling back somewhat as rival factions in Egypt clashed on the streets of Cairo, the blue-chip index closed 42.25 points higher at 6,000.07.

Market gossips were discussing vague rumours that Centrica could be the target of a 500p-a-share approach. Among those said to be supposedly pondering a bid were France's EDF and the Spanish group Iberdrola, but – with traders dismissing the idea – the British Gas owner declined 1.1p to 326.8p.

Imperial Tobacco was the top-tier index's best performer after rising 106p to 1,900p in the wake of its interim statement. The cigarette manufacturer announced that volumes had grown 0.5 per cent in the final quarter of last year, following a fall of more than 4 per cent in the previous 12 months.

Jonathan Jackson, the head of equities at Killik, said the update "highlights that the group's focus on organic growth – as opposed to the historic reliance on acquisitions and cost savings – is beginning to gain some traction".

Reiterating his "buy" advice on the company, Mr Jackson said that although an approach for the firm "is unlikely given the level of debt and potential competition hurdles, such speculation is likely to provide additional support for the shares."

Johnson Matthey also updated the market, but despite saying that its profits for the year should exceed forecasts, the platinum processor retreated 18p to 1,983p.

Another company left weaker by yesterday's trading was National Grid, which fell 11.5p to 548.5p as Investec reiterated its "sell" recommendation on the utility. The broker's analyst Angelos Anastasiou made the move following a seminar held by Ofgem earlier in the week on its new RIIO pricing model, with the analyst saying it had "only served to highlight the regulatory uncertainty" around the sector. Mr Anastasiou also pointed out that Scottish & Southern Energy was affected, and it slid 15p to 1,162p.

The pharmaceutical companies did not look in good shape yesterday, as the Swiss drug manufacturer Roche revealed its concerns over what effect reforms and budget cuts across the globe will have on the sector.

AstraZeneca plummeted 84p to 2,947.5p after going ex-dividend while GlaxoSmithKline dropped 19p to 1,127.5p, despite Morgan Stanley saying the likelihood of the company resuming its share buyback programme had increased following the sale of its $1.7bn stake in Quest Diagnostics.

Shire was in better shape, yet still edged down 11p to 1,634p, as Matrix's Navid Malik said it could be a takeover target – a topic which has been a frequent topic of speculation – thanks to its impressive top-line growth.

Northumbrian Water was also caught up in bid talk, with JP Morgan Cazenove saying its "relatively small [valuation]... makes it a likelier takeover candidate." It was lifted 11.5p to 307.5p on the FTSE 250.

Elsewhere on the second line, BBA Aviation jumped up 1.3p to 227.3p, helped on the read across by some of its peers from the other side of the Atlantic. Brewin Dolphin noted that "recent earnings updates from US aerospace businesses, including Parker Hannifin and Honeywell, have suggested that aftermarket activity is strong", which the broker said was a good sign for BBA.

The set-top box manufacturer Pace was in pole position on the mid-tier index, finishing 20.4p stronger at 213.3p, following reports that it has been given a key contract with the Indian pay-television group Tata Sky.

It may have suffered a torrid time recently, but JJB Sports was the stand-out stock among the small-cap companies after confirming it was in "highly preliminary" talks with JD Sports Fashion over a possible bid. The struggling retailer shot-up 0.8p to 5.4p thanks to the news, while its potential bidder shifted down 3.5p to 844p.