Market Report: Boots climbs on interest in healthcare unit

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Goldman Sachs is running the auction of the business, Boots Healthcare International (BHI), on behalf of the retailer. The division markets a wide range of well-known, non-prescription medicines including Nurofen painkillers and Clearasil skin products, and most in the Square Mile value it at about £1.2bn. But Deutsche believes this price is far too conservative and estimates that a range of £1.5bn-£1.8bn is more realistic, given the slew of international health companies said to be interested in the unit.

In fact, the German broker believes Reckitt Benckiser, 40p higher at 1,720p, could pay up to £2bn for the business, given the cost savings it would be able to generate once integrated with the rest of its operations. Deutsche is convinced that such a deal makes good sense for Reckitt and would get its share price motoring once complete. The broker said: "BHI is a good target for Reckitt. It would give the group's over-the-counter business global scale rather than just a UK stronghold."

The household goods giant could easily finance such a move. It has already set aside £2bn for acquisitions. Meanwhile, once the disposal has been completed, Boots will be free to focus on modernising its chain of chemists.

Elsewhere, Deutsche Bank also got investors piling into Schroders, 20p higher at 898.5p, before next week's results from the asset manager. The German broker says Schroders is trading strongly thanks to booming stock markets on both sides of the Atlantic, and raised its earnings forecasts for 2006 by 16 per cent. Deutsche expects it to deliver interim pre-tax profits of £112m on Tuesday, up from £65m last time, and therefore set a 920p price target on the stock.

O2 was again a major talking point as shares in the mobile phone operator hit a fresh high of 149.5p, up 4p on the day, amid heavy trading. It seems there are few traders in the City who are not betting on a bid for the group in the near future. Telefonica is seen as the most plausible buyer and word has it the Spanish telecoms giant has been looking at the feasibility of a deal for some months. A financial bidder should also not be ruled out, analysts say. Cash-rich private equity firms have become increasingly active in the European telecoms sector over the past year, while O2's particularly strong cash flows certainly make a deal all the more tempting to them.

Corus ticked 0.5p higher to 48.25p after better-than-expected results from its rival ThyssenKrupp. The German steel maker also raised its full-year forecasts, leading to hopes that the steel market could soon have another rally in prices. EasyJet fell 11.5p to 293p after the chairman of Icelandair, Hannes Smarason, played down rumours that his airline is about to launch a takeover offer for the no-frills carrier. He indicated that Icelandair has no plans to make a move on easyJet. The excitement had been caused by news that the Icelandic airline had upped it stake in easyJet.

Spirent added 2.25p to 54p on the back of an upgrade to "buy" from "neutral" at UBS. Setting a 70p price target on the telecoms equipment group, the Swiss broker believes two catalysts are likely to get Spirent stock moving high over the next 12 months. Material contract wins at its Service Assurance business is one, while the sale of its Network Products division is the other. Although Spirent issued a profits warning in April, UBS thinks the worst has passed at the company.

Highbury House Communications was 0.18p better to 2.67p after it emerged that Kelvin MacKenzie, the former editor of The Sun, had taken a 6.2 per cent stake in the stricken publisher. Mr MacKenzie is awash with cash after bagging £7m from the sale of The Wireless Group, a radio operator, to Ulster TV this year. Highbury House is conducting a major restructuring which, it is hoped, will save the magazines group. The company's management has promised to make yet more disposals, aimed at reducing its £30m debt burden.

ReNeuron returned to the market after a two-year absence. The stem-cell company raised £9.5m at 25p and saw its stock close at 26p. ReNeuron first listed in 2000 but was taken private by the biotech entrepreneur Chris Evans in 2003 after a series of drug trial disappointments.

Telit Communications rose 1.5p to 92.5p after signing a deal in Serbia and Montenegro.

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