Allied Domecq in ferment amid talk of brewing sale

MARKET REPORT

Shares of Allied Domecq were in a rare old ferment in late trading as stories swept through the stock market that the out-of-favour drinks group was on the verge of selling its remaining brewing interest.

Allied has never confirmed it wants to give up brewing but the City (and drinks industry) is convinced it is desperately keen to unload its 50 per cent shareholding in Carlsberg-Tetley, which suffered an embarrassing profits fall.

Carlsberg, the Danish brewer, shares ownership of CT with Allied. The alliance has not been particularly harmonious as CT has struggled in the highly competitive brewing environment following the Government's controversial Beer Orders.

Bass and Whitbread are regarded as the most likely buyers. Their interest has been heightened by Scottish & Newcastle's controversial acquisition of Courage which allowed Scottish to leapfrog Bass and become the nation's biggest brewer.

The position of Carlsberg is clearly crucial to any deal. The Danish group is likely to be reluctant to take CT into full ownership. So it may be prepared to arrange a trading deal with a UK group on the lines adopted by Fosters of Australia when it sold Courage.

Whitbread was last night regarded as the most likely to buy CT for around pounds 300m. If it did it would have around 30 per cent of the beer market - similar to Scottish. But should Bass emerge victorious it would return to number one position with some 40 per cent.

Allied, in a hectic flurry with one investment house buying all the shares it could, touched 519p; closing at 516p, a gain of 15p. The group refused to comment on the rumour, sheltering behind the traditional "we never comment on market speculation" response.

Bass, still benefiting from last week's figures, firmed to 726p; Whitbread shaded 4p to 664p.

The Allied speculation occurred just after Sir Christopher Hogg was confirmed as Allied's next chairman. He was responsible for splitting Courtaulds in two - chemicals and textiles. Some wonder whether he will divide Allied into two quoted companies, retailing and spirits.

The modest interest rate reduction gave shares a gentle lift, with the FT-SE 100 index closing 7.5 points up at 3,662.4. Further cuts are expected but cautious souls are taking the view that the economic slowdown may be much more severe than the Government is prepared to admit.

The bears certainly got the upper hand, with even the sight of the Dow Jones Index above 5,200 points failing to make any impression.

HSBC, the banking giant which embraces the Midland, firmed to 1,010p as stories circulated that a big UK deal was near. For some time a US bid has been expected. But Lehman Brothers, the US investment house, dismissed such talk, pointing to the possibility of a UK strike.

The market is convinced a financial bid is imminent. At various times in recent months almost every big insurance group has been dragged into the bid frame; so have the remaining independent merchant and clearing banks and most investment groups.

Gartmore, the fund manager put up for sale by its Banque Indo Suez parent, was thought to be due to succumb this week to a joint US/German bid.

BAT Industries, suspected of having a financial deal up its sleeve, gained 11p to 571p.

Rexham, the old Bowater packaging and paper group, was the day's best performing blue chip, up 19p at 356p. The Swiss Alusuisse group denied any intention of bidding but speculators immediately turned their attention to the possibility of a US strike. The shares have had a poor time this year, falling from 517p.

One takeover which materialised, a pounds 121m cash bid from Hillsdown Holdings for Hobson was a disappointment. Hobson had been regarded as a possible high flyer but the 31p take out compared with a 27p Hobson launch price. Tomkins' US expansion pulled the shares 7p higher at 269p.

J Sainsbury firmed 4p to 379p despite NatWest Securities downgradings from pounds 812m to pounds 787m and from pounds 882m to pounds 827m.

Pearson's downbeat trading statement lowered the shares 49p to 618p and Kwik Save, the stores chain, tumbled 39p to 519p on a gloomy statement.

MFI, the flatpack furniture chain, was little changed at 153.5p after lower interim figures. Disappointment with the East Midland Electricity dividend lowered the shares 36p to 703p.

Trafficmaster reversed 5p to 279p. The traffic monitoring group raised nearly pounds 3m by placing shares with institutions at 270.5p.

TAKING STOCK

r Queens Moat Houses, the struggling hotel chain, is attracting attention The shares gained 2p to 13.75p with turnover put at around 7.7 million. Although heavy borrowings make the QMH outlook subdued there is persistent talk a bidder could appear. With the hotel industry's fortunes improving, underlined by the battle for Forte, a brave soul could be tempted to buy all, or part, of what is one of the finest hotel chains in Europe. The reclusive Barclay brothers, who recently paid pounds 75m for London's Ritz Hotel, are rumoured to be interested.

r Expect a sharp profit advance at Cattles, a financial services group. Stockbroker Williams de Broe looks for profits this year to improve pounds 8.2m to pounds 28m, with pounds 33m next. The shares are 212.5p.