Market Report: Shire slides as largest investor cuts stake

Just how supportive is Shire Pharmaceuticals' largest shareholder of its controversial $1.6bn (£840m) deal to buy the US biotech Transkaryotic Therapies?

Just how supportive is Shire Pharmaceuticals' largest shareholder of its controversial $1.6bn (£840m) deal to buy the US biotech Transkaryotic Therapies?

This was the question being asked yesterday as it emerged that Franklin Resources, the giant US investment manager, has cut its stake in Shire from 12.9 per cent to 11.9 per cent in the past few days.

Franklin has been understood to be likely to back the acquisition, despite calls from some smaller shareholders for it to be voted down. Vocal opponents, including Britannic Asset Management, have called it a value-destroying deal, a risky acquisition made at the wrong price and in contradiction of Shire's previous strategy.

Yet the revelation that Franklin is voting differently with its feet sent Shire's shares down 5p to 558p yesterday. The stock fell 10 per cent in the two days after the announcement of the deal and has recovered only a little.

Fidelity, Shire's number two shareholder, has upped its stake from 5.9 per cent to 6.1 per cent, after an investor roadshow by Matt Emmens, the chief executive, where he argued that the acquisition will add several highly profitable new products to Shire's portfolio and will boost earnings from 2007.

It was a bad day for shares in all the heavyweight pharmaceuticals companies, as investors switched back into the mining and financial sectors which have been unloved over previous days. It all balanced out as a 19.8 point gain for the FTSE 100, its fifth successive positive day, taking the index to 4,902.3. Xstrata was the miner with the major share price leap, up 26p to 942p, followed by BHP Billiton, 18p better at 667.5p. Deutsche Bank has abandoned its negative stance on European resources stocks after recent share price falls.

Signet became the latest retailer to warn of deteriorating sales to the UK consumer, and the jeweller's shares were off a penny at 97.5p. There was also speculation of poor trading at Kesa Electricals, the owner of Comet, off 5.5p at 256.5p; WH Smith, down 5.5p to 330.5p; and Halfords, off 4.25p at 264.75p. As for Kingfisher, the owner of B&Q, which has announced one of the worst sets of current trading figures of recent weeks, its shares managed to hold steady at 253p. The company was again being talked of as an acquisition target for Home Depot of the US, and Goldman Sachs put out a handy research note explaining how Home Depot would get an 8 per cent boost to its earnings this year, even it paid a 20 per cent premium to Kingfisher's current price.

Some long-term holders of Sportingbet, the online gambling group, were taking money off the table. They have impressive winnings to bank, since this stock was below £1 a year ago and as low as 18p in 2003. It was still 272p after yesterday's 10p fall. The theory behind the profit-taking is that Sportingbet shares have been driven higher by their scarcity value because it has been the only pure online gaming stock on the market. Until now. The suggestion is that Party Gaming, the owner of the hugely successful Party Poker brand, could float sooner rather than later, perhaps next month. And Cassava Enterprises, the owner of 888.com, is also lining up a flotation.

Rumours of imminent positive news from its mining project in the Philippines helped push Minerals Exploration shares up 1.5p to 10.5p. And Regal Petroleum bounced 10p to 263.5p after its thumping decline of the past 10 days. The company raised £45m at 390p just last week but there are fears its Greek oil wells are uncommercial.

There was something akin to despair surrounding Highbury House Communications, the magazine publisher whose takeover by Future collapsed after being referred to the Competition Commission last month. Highbury admits it has a giant task on its hands to cut debt and refocus the business on a much smaller core of titles. Any rescue package will probably include a move to AIM, where investors holding the stock in Peps and Isas will be unable to stay in, and there were growing fears yesterday that management will be unable to find an attractive-enough core to justify new investors buying into the massive equity fundraising that looks necessary to keep the company going. The shares were the worst performers on the market, the penny fall to 1.75p representing a 36 per cent loss of value. Future, which is buying some titles from Highbury, was steady at 78p.

And despair, too, at MKM, the marketing company which is still in dispute with Express Newspapers over a "cruises for £10" promotion which went wrong and for which MKM has received damaging publicity. Floated at 42p in June, the shares were down 1.25p to a new low of 6p.