Blue-chip British shares closed lower on Tuesday with services company Rentokil a major faller as investors had second thoughts about Monday's bid potential, while British Airways also lost ground. The airline closed 1.6 percent down at 285 pence on uncertainty over supplies of in-flight meals from Gate Gourmet, the caterer which is struggling to save its UK operations from bankruptcy.
An industrial dispute at Gate Gourmet spread to BA earlier this month after staff at the airline went on strike to support sacked Gate Gourmet workers. Smith Barney analysts said BA's operating result for the year could fall by 40 million pounds because of the strikes.
"If we get any further signs of strike action hitting British Airways or Gate Gourmet going (into administration) the BA stock price could go below 280p, especially with the oil price as high as it is," said Martin Dobson at Westhouse Securities.
The FTSE 100 index closed 18.2 points lower at 5,300.2, tracking back in the afternoon with a weaker Wall Street where investors fretted over the potential for sky-high oil prices to stoke inflation and damp down consumer spending.
Rentokil finished 1.4 percent lower, giving back part of Monday's 10 percent gain as investors mulled over news businessman Gerry Robinson was considering a bid.
"We're not convinced about the Rentokil story. Even if he comes in, I don't think there's much upside so there's risk to the downside. There's not going to be a full bid for cash at 180p-plus so there's not much upside to it," said Mark McCutcheon, head of dealing at brokers Gerrard.
Robert Parkes, UK Equities Strategist at HSBC, said the FTSE 100 was still consolidating after a strong run over the summer.
"We feel the good run has been driven by fundamentals and not by unrealistic expectations. We can see the market bobbing around these levels and trending up a bit in the fourth quarter," he said.
"The economic outlook is starting to brighten up and we've seen a pick up in M&A activity so all the pieces of the jigsaw are starting to fall into place," Parkes added.
News and information group Reuters was a major FTSE gainer, up 1.5 percent after Deutsche Bank put out an upbeat note on the stock, dealers said.
Miner Antofagasta also bucked the trend, rising 1.5 percent on speculation of a possible bid approach for the firm following the death of its majority owner Andronico Luksic last week.
"Bid talk for Antofagasta is a little bit premature at the moment. The death of Luksic could provide an opportunity for somebody to look at the stock but it doesn't seem likely to make the family sell the stock," said Dobson.
Housebuilders helped the mid-cap 250 index close higher, led by [Persimmon] which jumped 5.1 percent after it reported record first-half profits and said confidence was improving among house buyers. Sector peer Barratt Developments rose 3.7 percent.
"The statement from Persimmon has gone down fairly well with the market. It's reassuring news as far as the housing market is concerned. They talked about volumes picking up and about protecting their margins, combined with a big jackup in their dividend payment," said Parkes at HSBC.
Back among the blue chips, tobacco companies BAT and Imperial Tobacco darted up about 1.4 percent each, a move dealers ascribed to talk that Deutsche had made positive comments on Franco-Spanish tobacco company Altadis before its results next week.