Julia Finch
The impact of the second industrial revolution will be emphasised next week when one in 10 stalwarts of the FTSE 100 index is likely to be ditched in favour of new-economy stocks.
The casualties could include many corporations – such as Imperial Tobacco, Whitbread and Scottish & Newcastle – whose histories predate World War II. The new boys will include a couple, such as Thus and Freeserve, whose roots reach little further back than last year’s conflict in Kosovo.
Out could go Allied Domecq, the world’s second-biggest drinks company with a turnover of #2,5-billion. In will come Kingston Communications, the Hull telecoms company with big Internet ambitions, but annual sales of just 150-million.
Gaining or maintaining FTSE 100 status is of increasing importance to company managements. Inclusion in the top 100 means the growing number of institutional investors who track the index are automatic buyers – which bolsters the new entrants’ share price. Conversely, relegation from the stock market’s equivalent of the premiership means fund managers are forced to sell.
It can cause other problems too. Alliance & Leicester, for instance, which is another tipped to take the drop next week, is likely to find it far more difficult to recruit a top banker to fill its vacant chief executive’s seat if it is ousted from the big league.
The details of which companies will come and go will not be revealed until next Wednesday and the decision will be based on Tuesday night’s share prices. Any firm ranking outside the 111 most highly valued companies is bound to be expelled, while corporations inside the top 90 will be safe. So, for managers keen to keep their status, there is still much to play for.
Several of the companies have been lobbying analysts and investors in recent weeks and the timing of Scottish & Newcastle’s Center Parcs sell-off, which boosted the brewer’s share price, was helpful.
But at yesterday’s prices Thames Water, Hanson, PowerGen and Associated British Foods were also heading for the dump bin, while handheld computer company Psion, computer services group Baltimore Technologies and biotech plays Celltech and Nycomed were ready to join the FTSE 100 big hitters.
By Wednesday Nycomed had become the country’s 82nd-biggest company by market capitalisation with Celltech 85th. Celltech’s entry would be significant, marking the first time a pure biotech stock will make it into the FTSE 100. British Biotech came close but fell from grace following its controversial product setbacks in 1998.