FTSE 100 closes at record high, buoyed by M&A

The FTSE 100 set a record closing high on Friday, completing a week dominated by a blockbuster deal in the energy sector, stoking expectations of further mergers and acquisition activity.

Royal Dutch Shell's agreed £47bn offer for BG, announced on Wednesday, sparked speculation that further dealmaking could follow, and not just in the oil sector.

Fomer transatlantic bid target Shire topped the FTSE 100 after upbeat news on its pipeline of upcoming drugs. Its shares, up 4.8 per cent at £57, experienced heavy trading volume, with the number of shares changing hands around double its daily average.

The rally came after Shire said its treatment for dry eye disease, Lifitegrast, was accepted for "priority review" by US regulators, potentially reducing the time it could take reaching the American market.

The company predicted in June as part of its successful defence against a £34bn bid from AbbVie, that it expected the treatment to generate over $1bn in sales in 2020. Paul Taylor, analyst at Shore Capital, said: "Timely approval of Lifitegrast would mark a significant step forward. "We model revenues of $557m by 2020 making the drug an important component of the company's vision for [total] revenue of $10bn by 2020."

In a recent report on the pharma sector, Fitch Ratings said: "A race to find the next blockbuster drug, combined with the availability of cheap financing, is leading to riskier M&A activity.

"Valuations have probably been boosted by pharma companies' low borrowing costs and deep market liquidity, as equity investors bet the biggest players will be willing to stock up on cheap debt to fund acquisitions."

Elsewhere within the sector, GlaxoSmithKline rose 1.9 per cent to £16.42. Medical devices maker Smith & Nephew rose 1.4 per cent to £11.95.

Meanwhile, BG ended up 37 per cent for the week at £11.68, while Shell's B shares were down 7.8 per cent over the same period.

"Increased activity will be perceived as good news by investors - a sign of rising confidence and could further drive deal flow," said Gemma Godfrey, head of investment strategy at Brooks McDonald.

Overall, the FTSE 100 rose 1.1 per cent on Friday to 7,089.77, a rise of 74 points. The rally was broad based, with only 8 constituents failing to make gains. The benchmark registered an all-time closing peak, eclipsing the 7,019.68 mark reached in March. It also beat the record intraday high of 7,065.08 also attained last month.

Jeremy Steinson, head of trading at Killik said: "Investors still seem to have plenty of cash ready to invest, and it looks as if the FTSE 100 is set to push higher at least for a little while yet."

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