By Kit Rees and Alistair Smout
LONDON (Reuters) - Pharmaceuticals companies helped Britain's top share index to move higher on Wednesday as Pfizer (N:PFE) pulled out of a deal for Allergan (N:AGE), prompting speculation over other merger and acquisition activity in the sector.
U.S. drugmaker Pfizer terminated its $160 billion agreement to acquire Botox maker Allergan in a major victory for U.S. President Barack Obama's drive to thwart tax-dodging corporate mergers.
The news lifted shares in Shire (L:SHP) and AstraZeneca (L:AZN) by 5.2 percent and 4.5 percent respectively, the top gainers on Britain's FTSE 100.
While it is unclear the extent to which a bid from Pfizer for a UK-listed drugmaker would fall foul of new U.S. Treasury rules to curb so-called tax inversion deals, traders said the sector was rallying on the possibility that British pharma companies might be back in play.
"The possibility now is that Pfizer goes shopping again, and you might be prepared to develop a case that maybe a firm like Shire becomes the bid target," said Chris Beauchamp, market analyst at IG.
"The implications of the new rules would have to be worked out, but if you've got cash sloshing around the sector, people are wondering who will benefit."
Several broker notes, including one from Credit Suisse (SIX:CSGN), said Shire's bid for Baxalta is likely go ahead despite the new ruling.
"It looks as though Shire will still be able to move forward with the Baxalta deal despite the rules," Beauchamp added.
The FTSE 100 was up 70.40 points, or 1.2 percent at 6,161.63 points at its close, with healthcare stocks adding about 13 points to the index.
Airlines were the biggest fallers, led lower by easyJet (L:EZJ). The budget airline fell 3 percent after the release of its latest passenger statistics.
Traders said the figures showed that the company was underperforming the likes of Ryanair (I:RYA), which produced stronger figures last month.
"Budget airline easyJet’s latest figures disappointed investors," AJ Bell Investment Director Russ Mould said in a note.
"Passenger numbers rose in March but the load factor fell after the airline was forced to cancel hundreds of flights, principally due to strike action in France."
British Airways owner IAG (L:ICAG) was down 2.6 percent.
Miner Glencore (L:GLEN) also fell, down 1.2 percent after agreeing to sell 40 percent of its agricultural business to Canada's state pension fund for $2.5 billion in a move to cut debt.
"The more assets Glencore disposes of, the more shareholders will begin to weigh up the benefits to the balance sheet versus the negatives of lost future revenue," Jasper Lawler, market analyst at CMC Markets, said in a note.
ADVISORY- Reuters plans to replace intra-day European and UK stock market reports with a Live Markets blog on Eikon (see cpurl://apps.cp./cms/?pageId=livemarkets for site in development). In a real-time, multimedia format from 0600 London time through the 1630 closing bell, it will include the best of our market reporting, Stocks Buzz service, Eikon graphics, Reuters pictures, eye-catching research and market zeitgeist. Breaking news and dramatic market moves will continue to be alerted to all clients and we will continue to provide a short opening story and comprehensive closing reports.
If you have any thoughts, suggestions or feedback on this, please email mike.dolan@thomsonreuters.com.
Mike Dolan, Markets Editor EMEA.