Market Report: Bid speculation sparks interest in Somerfield

Those traders who bet on takeover situations were spoilt for choice yesterday as the booming merger and acquisition market presented them with a slew of opportunities. Somerfield, up 2.75p to 215p, was certainly a major focal point for traders as word spread that a fresh offer for the supermarket group is imminent. Bulls of Somerfield believe that Baugur is about to return with a 220p a share offer for the group.

Those traders who bet on takeover situations were spoilt for choice yesterday as the booming merger and acquisition market presented them with a slew of opportunities. Somerfield, up 2.75p to 215p, was certainly a major focal point for traders as word spread that a fresh offer for the supermarket group is imminent. Bulls of Somerfield believe that Baugur is about to return with a 220p a share offer for the group.

And they don't expect the bidding to stop there. Apart from Baugur, a number of property investors are said to be interested in the UK fifth-biggest supermarket chain. Among them is the Iranian-born property tycoon Robert Tchenguiz, the Livingstone Brothers, who have hired UBS as advisors, and, most recently, Topland, which is run by the multimillionaire Sol Zakay. It is estimated that Somerfield's property assets alone are worth £1bn. At yesterday's close the company was valued by the stock market at just £1.1bn.

Singer & Friedlander, 11.5p higher at 328p, was also actively traded amid hopes that a formal offer will soon emerge from Kaupthing valuing the merchant bank at more than 350p a share. Kaupthing is in a prime position to buy the company as it owns 19 per cent of S&F, while its fellow Icelandic investor Burdaras holds 9.4 per cent.

Allied Domecq, which on Tuesday said it had received a joint takeover offer from Pernod Ricard and Fortune Brands, added 9.5p to 642p as Dresdner Kleinwort Wasserstein suggested that an offer price of up to 670p a share is a real possibility. The German broker calculates that on a break-up basis Allied is worth as much as 800p a share, so should Pernod/Fortune secure the purchase of the drinks group they will retain significant value for themselves.

SSL International, off 6p at 294p, was under selling pressure after Boots announced that it plans to sell its healthcare business. The unit is believed to be worth between £1bn and £1.25bn and its presence on the market makes it less likely that a buyer will emerge for SSL, which operates in the same arena. Traders believe it is a much bigger prize for one of the few global healthcare players and will therefore leave SSL very much in the shade during the coming months.

Among blue chips, WPP was a top performer, gaining 12p to 618.5p, thanks to an upgrade from Credit Suisse First Boston. The broker upped its rating on the advertising giant to "outperform" from "neutral" and its earnings forecasts for this year and next. "This move reflects our more optimistic view on the company's growth prospects relative to its peers," CSFB said. It believes that advertising is entering an up cycle, citing evidence that corporations throughout the world are presently sitting on record amounts of cash.

Tate & Lyle gave up 15p to 512.5p after Corn Products, the second-biggest US producer of sweetener products, issued a profits warning yesterday. The company complained that higher corn, energy and freight costs had taken their toll on its profits margins.

Signet dropped 2.75p to 112p as Citigroup downgraded the ailing jewellery retailer to "hold" from "buy" and set a 115p price target.

Isoft received a welcome boost from Morgan Stanley, which started coverage of the IT services group with an "overweight" stance. The news sent Isoft 13.75p higher to 376.5p. Morgan Stanley believes that the market has been far too bearish on the group in recent months, and that concerns about the stability of its earnings have been overdone. The broker was particularly upbeat about Isoft's Lorenzo product which, it believes, could emerge as a must-have solution for the healthcare industry not just in the UK but throughout the world.

Lower down the pecking order, Armour Group added 4.5p to 67p after unveiling a strong set of interim results. Operating profits rose 21 per cent to £2m at the in-car entertainment specialist, thanks to new customer wins and a series of product launches. Erinaceous put on 6.5p to 235p as Nigel Turnbull, chairman at the support services group, picked up 5,000 shares at 229p.

Bear raiders attacked Medical Marketing International, down 21p to 211p. Shares in the biotech group peaked at 298p earlier this month, having risen nearly sixfold since the start of the year, but have been under pressure since a note from KBC Peel Hunt argued that the company's stock-market valuation had got ahead of itself.

Finally, the Australian miner Gravity Diamonds is expected to float on AIM today. BHP Billiton holds a 10p per cent stake in the group which is exploring for diamonds in Australia and the Democratic Republic of Congo. Gravity and BHP are jointly exploring the Kasai region in Congo.