The FTSE 100 index has begun the week strongly, following on from a revival during the latter stages of last week, rising 64 points or 1.3% to 4916 by 10am, helped by continuing strength among mining stocks and news of a huge bid for confectioner Cadbury from American food giant Kraft Foods.
Cadbury gained a stunning 39% as details emerged that it had rejected a £10.2 billion bid by Kraft, North America's largest food company. Kraft said that its proposed merger would produce a 'global powerhouse in snacks, confectionary and quick meals.'
The failed bid values Cadbury at 745p per share. Cadbury commented that the bid 'fundamentally undervalues' the company.It would appear that the stock market agrees, as by 10.30am Cadbury was trading at 793p. Kraft said the announcement would 'encourage further' discussion with Cadbury and many analysts echoed this sentiment.
Evolution Securities analyst Warren Ackerman wrote in a research note that, 'there is a reasonable chance that Nestle/Hershey could counterbid with Nestle taking gum and Hershey taking chocolate.'Evolution rates Cadbury as 'Buy' and estimates a counterbid as being 30-40% likely.
The approach sparked speculation of further mergers and acquisitions activity, helping to lift other companies in the same sector, with Associated British Foods rising 3.1% to 837.5p and Unilever gaining 2.7% to 1667p. ABF also benefited from news that it had bumped up its full-year earnings forecast on account of good results from its Primark chain.
Stock markets around Europe also performed strongly this morning, with the German DAX and the French CAC both up around 1.5% by mid-morning, while the DJ Stoxx Euro 50 gained a similar amount.
Deutsche Telekom continues to be in discussions regarding the sale of its UK T-Mobile operation, with Vodafone and Telefonica both having made offers of around £4 billion. Bloomberg today quoted an anonymous source as saying that Deutsche is close to making a decision, while the FT says that Deutsche Telekom is also in talks with France Telecom over a joint venture for the UK operation.
In my opinion, there is a growing sense that the global economy is on track to recover sooner rather than later, driven by the latest US unemployment data, with news on Friday that non-farm payrolls fell by 216,000 in August, fewer than had been forecast, and also by reports from the Xinhua news agency on Saturday that China is undergoing a 'V-shaped' recovery and that growth will have normalised by 2010, citing an adviser to the Chinese central bank.
Markets have also been reassured by the agreement of G20 finance ministers and central banks to maintain current economic stimulus packages.
These signs of recovery have helped miners continue their recent strong performance, with Xstrata and BHP Billiton gaining more than 2% and Rio Tinto up around 1.5%.
With the US closed for Labor Day and no major economic news scheduled, the Cadbury story may well be the biggest news today, and this afternoon's trading could be quiet.
