Market Report: BAA dives after traders fear for Ferrovial bid

Late sellers had the upper hand in BAA, as rumours swept the market that the Spanish construction group Ferrovial may walk away from a bid for the UK's largest airport operator if regulators decide to look at it.

It would be unusual for the regulators to get involved before an official offer has been made, but that did not stop traders falling over themselves to dump the stock.

BAA shares plunged 55.5p to 775p by the end of the session, having lost 70.5p in early afternoon. Dealers pointed the finger at a collection of hedge funds said to be rumour-mongering to drive down BAA shares to turn a quick profit.

Ferrovial is yet to make a formal offer for BAA, and a spokeswoman for the Spanish group said the situation has not changed since its statement on 8 February when the company admitted it was mulling an offer.

One trader said: "It would be naive to think a bid like this would not go to the regulator at some point. BAA has a virtual monopoly on the largest airport assets in the UK. Ferrovial knew they would have a fight on their hands to get permission to proceed. There is a lot of profit in the stock so it is not surprising to see some panic selling at the first hint of trouble." More than 46 million BAA shares changed hands.

Wolseley, the largest supplier to the plumbing industry, has made its investors a tidy sum in the past three years. From a low of 450p in early 2003, its stock closed up 50p at 1,411p yesterday, a profit of more than 210 per cent for anyone lucky enough to have taken a punt at the low point.

Three more bolt-on acquisitions announced this week, two in the US and another in France, took Wolseley's spending spree to more than £570m in the past 12 months, well ahead of internal spending targets. The US domestic and industrial plumbing market remains fragmented, and Wolseley is the biggest player in both markets.

Analysts like the bolt-on strategy, and the Dutch broker ABN Amro published an upbeat note on its stock yesterday, urging its clients to buy Wolseley in advance of interim results on 21 March. It said: "Upgrade potential seems to be emerging, while the valuation still looks undemanding. If historical correlations are maintained, merchant demand should pick up through the spring and summer."

Following on from Wednesday's bid speculation, it was another blockbuster session for the pharmaceutical giant AstraZeneca, which added118p to 2,832p, a near three-year high. The bid talk will not die down, with traders talking up an offer worth 4,000p from its Swiss rival Novartis. Separately, AstraZeneca has launched a patent writ in New Jersey against the generic drug maker Ivax over patent infringements on Nexium, its treatment for stomach acid.

Despite what seemed to be a busy day on the markets, most of the session's gains made up for Wednesday's mass ex-dividend dates, and overall volume was modest. There was some support from the Dow Jones as Wall Street opened in positive territory for the first time this week, helping the FTSE 100 close 43 higher at 5855.9.

Rolls-Royce performed strongly, rising 13.5p in early trade as BMW completed the sale of 2 per cent of its holding. The sale is due to the exercise of a convertible bond issued three years ago, convertible into Rolls-Royce shares.

Germany's BMW is left with a 3.25 per cent stake in the Rolls-Royce, which may still be converted. Early bid rumours, thought to be from a private-equity firm, were quashed by traders, and the luxury car maker's stock gave back most of its early gains to close 3.25p higher at 441.25p.

The can manufacturer Rexam was well bid, gaining 18p to 553.5p after a week of buying from long-only fund managers. Its stock has rocketed after a dire start to the year, gaining 17 per cent since mid-February.

Among banks, Bradford & Bingley was in the spotlight, with the large Spanish financials BBVH and BCSH again being talked of as potential suitors. Some traders were dismissive of the rumours, suggesting that some hedge funds, long on B&B, were the source of the chatter. Even so, itsshares traded at 497.75p, up 6.2 per cent, before giving back much of the gains as profit-taking took hold. Its shares closed 14.25p better at 483p.

Meanwhile, Soco International pleased the market with full-year numbers well ahead of forecasts, and its shares rose 36p to 850p. The oil explorer also said that it expects to start production from its Vietnamese operations within the first half of 2006, a year ahead of schedule.

The star performer among small caps was Eirx Therapeutics, up 70.6 per cent at 0.29p, as it won £400,000 of funding from the applied genomics specialist Almac Diagnostics to develop treatments for colorectal cancer.