Market Report: BG Group climbs on talk of Exxon Mobil bid

Only a few weeks ago it was Gazprom eyeing up Centrica, but now BG Group, the exploration and production arm of British Gas, is in the cross hairs. Traders are pointing at Exxon Mobil, the world's largest integrated oil major, as a possible bidder.

BG reported blockbuster 2005 results five weeks ago, with fourth-quarter profits soaring 96 per cent on the back of strong production and significant price increases in the wholesale gas market. Shareholders have already been well rewarded by holding on to their BG stock as the price has followed the gas price, doubling since Christmas 2005. BG declined to comment but traders are convinced an approach will be made sooner rather than later.

BG rose 8.5p to 709p, giving it a market capitalisation of about £27bn, including debt. With the positive outlook for the group, emphasised with the 2005 results, traders said they expect to see at least a 30 per cent premium for a bid, indicating a value of about 920p per share. Loose change for Exxon, as the company is worth $371bn (£211bn), and last year made profits of $25bn.

BAA was once again in focus after reports that Goldman Sachs is about to enter the race to buy the UK's largest airport operator did the rounds. Goldman has a $3bn infrastructure fund and traders said it could easily fund the deal, with one or two partners. The Australian infrastructure investor Macquarie Bank is the favourite to partner Goldman, as the bank advised Macquarie on its offer for the London Stock Exchange and the two have a close deal-making relationship.

The BAA takeover saga looks like it will rumble on for a while, but traders are confident a bid higher than the 810p already offered by Spain's Ferrovial will materialise. BAA climbed another 11p to close at 839.5p.

A strong start to trading in the London market soon fizzled out as New York opened without the expected surge in prices. As New York sold off, so London followed suit, and the FTSE 100 again failed to hang on to the 6000 level, closing 7.7 lower at 5991.7.

Not surprisingly the star of the FTSE 100 was Prudential, as the insurance group rebuffed a 700p offer from the rival Aviva. Prudential surged 71.5p to 743.5p as traders speculated a bidding war might tempt the US rival AIG and the French rival AXA to enter the fray. The move helped the insurance sector, as Royal & SunAlliance - itself the subject of takeover rumours - firmed another halfpenny to 140p and Legal & General was 1.25p better at 144.75p.

Elsewhere in the FTSE 100 Hanson continued its strong run as traders continued to talk about a possible demerger or bid, thought to be coming from the Mexican concrete products and cement group Cemex. The shares added 27.5p to close at 778p.

Housebuilders had a mixed day as the rumour merry-go-round pointed to a possible bid for Crest Nicholson from Bovis Homes. The latter has been involved in numerous rumours in recent weeks and there seems to be little doubt among traders that more consolidation is in the pipeline. Crest added 25.25p to close at 570.5p; Bovis declined 5p to 920p.

As expected the private-equity group Permira dropped its bid for the CD and DVD retailer HMV Group, having twice been turned away by the company's board. One trader said: "This deal never really got any momentum going and this news shouldn't come as a surprise to anyone. The long term logic for Permira made little sense and they weren't prepared to go for broke to buy an asset whose main business appears to be in terminal decline." HMV finished 7.5p lower at 183p.

AorTech, the biomaterials intellectual technology group, was among the star performers among the small caps, climbing 112.5p to 386.5p. It confirmed yesterday it has signed an agreement with St Jude's, a US medical devices group with a market capitalisation of more than $16bn, to licence its heart valve technology. The shares have trebled in the past three months.

It was another strong day for the drug discovery group Henderson Morley as it confirmed it has signed a licensing deal with an unnamed US pharmaceutical group for its ionic contra viral therapy, which treats non-genital warts. The shares, up from 0.77p a week ago, are now trading at 2.3p, having added 0.35p yesterday.

In the new issues, Planet Group added to the mutli-cultural market place that is AIM. The Long Beach-based credit card payment processor was placed in the market at 125p by Cannacord Adams and closed on an 18 per cent premium at 157.5p. Finally,the lock technology provider Servocell Group was brought to the market by Bell Lawrie in an institutional placing valuing the shares at 54p. The shares rallied 13 per cent to close at 61p.