Oil and gas stocks dominated trade in a falling UK stock market on Wednesday, driven by a $70 billion bid by Royal Dutch Shell for energy firm BG Group. Shares in BG jumped 26.6 percent to hit their highest level since September when the stock was tracking a falling oil price.
The two listings for Shell, which is offering a 52 percent premium to BG's trading average for the past three months, fell 5.3 percent and 8.6 percent, respectively.
"With BG Group, Shell gets exposure to Brazil's vast Santos Basin reserves, and further involvement in the integrated gas market," Lombard Odier Global Energy Fund manager, Pascal Menges, said.
"But it comes at a hefty price. Management will have their work cut out to execute the deal and generate synergies and assets sales."
The proposed deal was seen as a possible harbinger of further mergers and acquisitions activity in the battered energy sector, fuelled by ultra-low interest rates across the developed world.
"It's almost cheaper to buy a company than drill for oil yourself in this type of environment," said fund manager Paul Mumford at Cavendish Asset Management, which manages about 1 billion pounds in assets and owns shares in Shell and BG.
BP rose 0.5 percent and Tullow Oil was up 4.4 percent.
The FTSE 350 oil and gas index closed flat as the sharp gains in BG and Tullow were offset by losses in Shell. Trading volume in BG and Shell's A listing was more than seven times the stocks' averages for the past three months.
The broader FTSE 100 closed 0.4 percent lower at 6,937.41 points, surrendering to some late profit taking after a near 3 percent rise over the previous three sessions.
Pay-TV group Sky rose 1.6 percent after Reuters reported that French media conglomerate Vivendi was looking at buying it as one of several options to expand the reach of its TV group Canal Plus.
British chip design firm ARM Holdings rose 1.9 percent, with traders citing speculation about a takeover bid. The company declined to comment.
Foreign investors are snapping up British companies at the fastest pace in eight years, according to Reuters data, despite a looming general election that investors think will feed market volatility over the coming weeks.
The election is looking tough to call and, adding to the uncertainty, Scottish nationalist leader Nicola Sturgeon has raised the prospect of another independence referendum after 2016.
"The election still failing to dent the (FTSE) index's strength," said Connor Campbell, analyst at Spreadex.