LONDON MARKETS: FTSE 100 Ends Lower As British American Tobacco's Slump Offsets Burberry's Jump

By Carla Mozee and Victor Reklaitis, MarketWatch

IHG shares hurt as revenue growth slows

U.K. stocks closed slightly lower Friday, as British American Tobacco PLC dropped while Burberry Group PLC popped higher on separate merger prospects.

The FTSE 100 index closed down 0.1% at 7,020.47 after darting between small gains and losses throughout the session.

The index on Thursday also had a choppy session (http://www.marketwatch.com/story/uk-stocks-slip-as-retail-sales-miss-forecasts-2016-10-20) and closed higher by less than 0.1%. For the week, the blue-chip benchmark scored a 0.1% rise, stabilizing after last week's loss of 0.4%.

M&A moves: Burberry shares (BRBY.LN) (BRBY.LN) leapt to the top of the benchmark Friday afternoon, jumping as much as 8.1% after a report the British fashion house may merge with American high-end goods retailer Coach Inc (http://www.marketwatch.com/story/coach-burberry-shares-jump-after-report-on-potential-20-billion-merger-2016-10-21).(COH) in a $20 billion deal.

Coach is working with investment banking advisory Evercore on a possible deal, reported Betaville, a website focused on deals and deal makers, citing sources.

Burberry shares pared their gain to end up 3.1%. That came after the shares on Tuesday sank 7.2%, the biggest loss in a year, after the company posted a 4% quarterly drop in underlying revenue (http://www.marketwatch.com/story/burberry-revenue-weighed-down-by-us-hong-kong-2016-10-18). Coach was trading about 0.7% lower in New York, as an earlier advance faded.

Elsewhere on the FTSE 100, shares of clothing retailer Next PLC (NXT.LN) were off 1% and department store chain Marks & Spencer PLC (MKS.LN) slipped 1.3%.

Investors drove up British American Tobacco's stock (BATS.LN) (BATS.LN) , but the gain didn't stick, leaving BAT closing down 2.9%. The move came after the company proposed buying the stake in Reynolds American Inc (http://www.marketwatch.com/story/bat-in-47-billion-offer-for-reynolds-stake-2016-10-21). (RAI) that it doesn't already own for $47 billion.

Investors initially were ready to "look past the hefty price tag and think of the increased market share and revenues that will accrue in the future," said Chris Beauchamp, chief market analyst at IG, in a note.

Imperial Brands PLC (IMBBY) (IMBBY) , maker of Davidoff cigarettes and other products, rose 2.7% "on expectations that it too might either be forced to look for new acquisitions or, perhaps more plausibly, become a bid target itself," Beauchamp said.

Reynolds shares were zooming up 14% (http://www.marketwatch.com/story/reynolds-jumps-18-premarket-on-47-billion-bat-offer-2016-10-21) in New York trading as London traders wrapped up their session.

Moving in the other direction, InterContinental Hotels Group PLC (http://www.marketwatch.com/story/ihg-strikes-confident-tone-about-yearly-outlook-2016-10-21)(IHG) fell 2%. The owner of the Holiday Inn, Crowne Plaza and other chains posted a 1.3% rise in third-quarter revenue per available room, slower than the 2.1% rate expected by analysts polled by FactSet.

"It's not all bad news though. With 50% of group and 40% of European central costs in sterling, as well as 70% of group debt, the lower pound should prove a benefit, even if (as a dollar reporter) a stronger [U.S. dollar] undermines revenue growth," wrote Laith Khalaf, senior analyst at Hargreaves Lansdown.

The pound was buying $1.2208, down from $1.2252 late Thursday.

British Prime Minister Theresa May on Friday said the U.K. wants to continue to trade freely in goods and services with the European Union even after it leaves, but she also received warnings (http://www.marketwatch.com/story/eu-warns-uk-leader-theresa-may-that-brexit-will-be-a-hard-road-2016-10-21) from other leaders about the difficulties around Brexit.

(END) Dow Jones Newswires

October 21, 2016 12:24 ET (16:24 GMT)

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