With a market capitalisation rapidly approaching £1 billion, Tullow is second only to Cairn in size. And the challenger can smell blood. Cairn is reeling after investors, disappointed with last week’s operating update, wiped 20 per cent off its share price. Whereas Bill Gammell of Cairn has led his company to exploration glory — and now doubt — in India, Aidan Heavey, his Tullow counterpart, has adopted a very different strategy. Mr Heavey’s plan is to acquire assets with proven reserves of oil and gas and to work on them to maximise output. With luck, and the application of new oil industry techniques, assets can be sweated some way in advance of expectations.

Tullow has a lower risk profile than Cairn but that does not mean it is low risk. Too often companies overpay for assets, or pick duds. Then there is the price of oil and gas to take into account. While Tullow has taken full notice of the way the price has tumbled in recent weeks and the possibility that the weakening will continue, there is always a chance that the company will attain disappointing prices for the gas it sucks from beneath the North Sea. Meanwhile, Tullow’s Energy Africa acquisition will take time to digest because some of its core value lies in its exploration potential.

Schooner/Ketch should prove an immediate moneyspinner, however. Tullow may be a beneficiary of fears circulating about Western European over-dependence on Russian gas in the context of the continuing Yukos saga.

The deal will be financed with debt, doubling Tullow’s gearing to about 55 per cent. Tullow says the deal will be earnings-accretive once it settles early next year, however. Importantly, a planned £71 million capital expenditure programme to boost the gasfields’ production from 60 to 140 million cubic feet of gas a day is unlikely to affect Tullow’s African exploration budget. Hold.

Uniq

ANYONE would think that the management of Uniq, the chilled prepared food manufacturer, did not want to be taken over. First they said the mooted offers undervalued the company. Then they said the offers were enhanced, but in a world-weary way that suggested it was no more than a possibility that a bid would materialise.

Management has also chuntered darkly about pension fund liabilities. Normal practice is for executives to brush aside pension funding issues because it is the sort of bad news that hurts share prices. Top brass at Uniq, however, are giving a full and frank exposition of the liabilities. Yesterday’s statement left observers in no doubt that Bill Ronald, the chief executive, will ensure the fund meets its commitments.

It is only right that Uniq outlines the pension fund position frankly. Since boards have a duty to maximise shareholder returns regardless of the effect on them personally, it would also be wrong to assume that Uniq is endeavouring to use the pension issue as a weapon to frighten putative bidders away. The result, however, may well serve the interests of shareholders who look to the long term.

The whisper is that private equity houses lie behind the bid talk and these bidders are not known for generosity — although they no longer achieve the bargain prices they once did. More critically, short-term investors, such as some types of hedge fund, can give bid situations a self-fulfilling life of their own. Once up and running hedge funds can build dominating positions which can swing bids in the favour of those looking to make a quick, but modest, turn.

If the bid never gets off the drawing board, where these offers seem to be stuck, the interests of longer-term shareholders may be well served. Uniq has operational challenges that may depress profits in the current year. But it has some strong positions in food segments both in the UK and on the Continent. Pricing pressure is constant but at 186p the shares trade at barely ten times prospective earnings per share. A well-covered dividend gives a decent 4.2 per cent yield, too. Hold.

SDL

SHARES in SDL, the language translation software business, responded enthusiastically to news that it had won additional business from Microsoft. The power of Bill Gates’s leviathan may worry regulators in some parts but the scale on which it operates hands juicy opportunities to a relatively small fish such as SDL. Coming just a couple of weeks after SDL won an attractive-looking contract from Computer Associates, that other big player in the software game, things appear to be swimming along very nicely for the UK tiddler.

Moreover, the market for language translation services is huge. Internet websites offer good chances but are far from the only ones available. The seal of approval given to SDL by attaining “premier supplier” status from Microsoft and the work being done for CA means SDL stands a better chance of winning contracts from other suppliers. SDL, by offering services whereby its employees clean up the almost inevitably imperfect computer-generated translations, can exercise some power over selling prices. It is also profitable and has net cash on its balance sheet.

It would be a mistake to get too carried away with the news. SDL, after all, had an existing relationship with Microsoft and the new contract, in itself, may deliver no more than a 5 per cent lift to annual sales. But shares sit on a prospective price to earnings ratio of 18, which is relatively modest if you assume that the company will produce above-average profits growth. And while SDL has yet to pay a dividend, these could come sooner rather than later. Buy.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive