Market Report: Glaxo misses out again but broker is bullish

Sometimes it's not about what you do buy, it's about what you don't. Some traders were concerned that GlaxoSmithKline was getting itself involved in an auction to buy Pfizer's over-the-counter consumer drugs unit that would have left the US pharmaceutical giant as the only winner.

Most analysts think the $16.6bn (£9.1bn) price tag Johnson & Johnson has agreed to fork out is expensive. It is the third time Glaxo has failed to win an auction for an over-the-counter drugs group, having lost out on Boots Healthcare to Reckitt Benckiser and Roche's over-the-counter unit to Bayer. That might sound like a bad run but the broker Collins Stewart thinks it will force Glaxo to concentrate on growing its own over-the-counter brands organically and will put more emphasis on Glaxo's impressive pipeline of new drugs.

Although shares in Glaxo dropped by 12p to 1,474p yesterday on its failure to win the Pfizer auction, Collins Stewart believes the shares are "significantly undervalued". The broker now has a price target on the shares of 2,307p, 56.5 per cent higher than the current price.

Many traders expected a busy day from mining stocks after the US group Phelps Dodge announced a $56bn three-way tie-up with Inco and Falconbridge. Not only does the deal create a diversified mining group big enough to compete with BHP Billiton and Rio Tinto, but the price blew Xstrata's competing offer for Falconbridge out of the water. However, a surge in buying activity failed to materialise, and although most miners closed the session in positive territory there was little to get excited about. Rio added 9p to 2,810p, BHP Billiton added 3p to 997p and Xstrata, benefiting slightly from shareholders' relief that it would not pay over the odds for Falconbridge, closed 17p firmer at 1,955p, after having hit a high of 2,010p earlier in the session.

A good mining sector was not enough to pull the FTSE 100 into the black, as the main index traded with moderate losses for most of the session thanks mainly to a weaker oil sector. The market closed marginally lower, down 10.9 at 5681.2.

Strong first-half numbers from Persimmon, the only housebuilder in the blue-chip index, were not enough to prevent a bout of profit-taking as the shares fell 9p to 1,200p. The stock has had a good run recently but traders said that, despite the numbers being ahead of forecasts, there are lots of nerves about the frothy state of the housing market, particularly in the US, with some interest rate bears predicting a significant decline in new home sales. After five days of good performance last week, sellers had the upper hand in the sector, with Bovis Homes 7p weaker at 800.5p and George Wimpey 5.25p worse at 439.5. Berkeley Group, due to report numbers on Friday, was one of the few gainers, nudging 5p firmer to 1,194p.

After months of speculation, London Clubs International, the casino operator, finally confirmed that it is in merger talks. The group has been linked with a number of potential suitors, most persistently Rank Group, but it now looks like a nil-premium merger with Stanley Leisure will put an end to market hopes of a bidding war. Stanley shareholders look to have done slightly better out of the deal at this stage, with the shares adding 7.5p to 642.5p, as Altium Securities reiterated its "add" advice on the stock with a price target of 725p. London Clubs remained unchanged at 107p and Rank shed 2p to 204.5p.

The small-cap oil exploration and production group Sound Oil returned to the market after having been suspended for the past two months. The group has signed a deal to acquire Mitra, another exploration group with assets in Indonesia, for a total of £16.2m after raising a gross £11.7m via a placing at 7.25p. Some traders were hoping the shares would bounce on returning to the market, but the appetite for smaller oil stocks has diminished since the shares were suspended and they fell 0.88p to 6.12p.

A genuine merger of equals is a very rare thing, a fact illustrated by Wilmington and Metal Bulletin yesterday. The speciality publishing groups announced a merger but from the shareholders' point of view Wilmington was the big winner, adding 17.25p to 197p, a jump of 9.6 per cent, while Metal Bulletin could only add 9p to 307.5p, a 3.9 per cent improvement.

Finally, investors will be on the lookout for Bridgewell Group, the asset manager and stockbroker, as it comes to the market tomorrow. The company raised £10m through a placing organised by Bell Lawrie White at 140p, which was thought to have been three times subscribed. Owing to market conditions, the placing price was reduced from 150p but traders say the company has done well to get the placing away.