Global telco giant Vodafone kept Britain's top share index afloat on Friday as speculation about a bid from U.S. peer AT&T fuelled a rally in Europe's largest mobile carrier.
Shares in Vodafone jumped 3.6% to 232 pence, adding 15 points to the FTSE 100 after a media report said AT&T was exploring strategies for a potential takeover of the British telecoms firm as part of a push into Europe.
BofA Merrill Lynch, which sees Vodafone as a good cultural fit with AT&T, said a potential bid from AT&T could offer further upside.
Merger and acquisition activity in the European telecoms sector has been picking up pace in recent months as operators sell some of their assets to cut debt and overseas investors take advantage of low valuations for European telecoms, which have been hit by Europe's economic crisis.
"M&A is a big sector theme in European telecoms currently," said Guy Peddy at Macquarie Research, adding any AT&T bid for Vodafone was likely to be in the 250 pence-255 pence range.
"European operators are in some cases looking to divest assets to de-risk but also the implied valuation of European assets is noticeably lower than other geographies so you'll see more interest from overseas investors."
The FTSE ended up 3.31 points, or 0.1%, at 6,734.74 points. The index hit a five-month high at 6,819 earlier this week and is up 12% from June.
Societe Generale's derivative strategists said the rally in the FTSE was now likely to pause and recommended that investors sell options to buy the index at 7,000 points by December.
State-backed lender Royal Bank of Scotland held the FTSE back. Its shares slumped 7.5% after the UK's fifth-biggest bank by market capitalisation posted worse-than-expected results that overshadowed its moves to deal with a $61 billion portfolio of bad debts.
Aircraft parts supplier Meggitt fared even worse, plunging 11.1% in its worst daily loss in 12 years after the company cut its full-year revenue guidance.
The two firms' results added to a largely negative tone from corporate reports this week and drove heavy selling of both stocks, with volume more than three times their respective full-day averages for the past three months, compared with less than 74% for the FTSE 100.
Analysts have cut their estimates for next year's earnings from British companies by 1.1% in the past 30 days and now the mean estimate from analysts with the best track record is for a 10.8% growth rate.
