Market Report: Brewers froth on rumours of S&N takeover

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The Independent Online

SABMiller is said to be in acquisition mode, with some continuing to see Scottish & Newcastle as its target. Others pointed to Bavaria, the Colombian brewer that is seeking an international investor, as SABMiller's preferred quarry, though it will face competition from Scottish & Newcastle and Heineken, the Dutch group.

SABMiller is said to be in acquisition mode, with some continuing to see Scottish & Newcastle as its target. Others pointed to Bavaria, the Colombian brewer that is seeking an international investor, as SABMiller's preferred quarry, though it will face competition from Scottish & Newcastle and Heineken, the Dutch group.

There were other voices yesterday suggesting that it would be America's Anheuser-Busch that would swallow Scottish & Newcastle, which gained 4p to 482.5p. A successful bid would have to be pitched at around £5bn.

SABMiller, up 16p to 831p, will report annual results today, so its appetite should become clearer. Analysts pointed out that it is seeing a strong net cash inflow, reducing gearing and making larger acquisitions more likely.

With the sector player Allied Domecq in the process of being bought, dealers are excited about the prospects of a bid for Scottish & Newcastle.

The broker Credit Suisse First Boston added its voice to the positive noises around Scottish & Newcastle yesterday, but its interest stemmed more from its views on the brewer's trading performance.

Scottish & Newcastle management told Credit Suisse the brewer is gaining a bigger share in the UK market, with a 1 per cent decline versus 4 per cent for the market generally. This was driven by investment in its key brands -Foster's, Kronenbourg 1664, John Smith's and Strongbow - and more beneficial pubs contracts.

Credit Suisse also reckoned that cost-savings at the drinks group were "moving to the next level", over and above the £60m announced. The broker thought that Scottish & Newcastle could manage a further £10m to £15m a year.

Also within the food and drinks sector, Cadbury Schweppes, down 7p to 546p, often seen as a bid target too, was attracting interest. A trading update today is expected to show a strong first quarter in confectionery and US frizzy drinks.

The broader market had a very good day, with the FTSE 100 enjoying one of its biggest daily points rises this year, leaving the index at a five-week high of 4949.4, up 50.9.

Positive economic news from the US and China as well as healthy employment data in the UK buoyed traders, who were also cheered by some of the UK corporate news - such as 02, the mobile group, which gained 2p to 116.5p after delivering a bigger-than-expected maiden profit and solid full-year results.

Chinese trade data showed that showed exports up 32 per cent in April, with imports rising 16 per cent.

One sector that stands to gain from the continued strength of the Chinese economy are suppliers of commodities and steel that the country's booming industries suck in. As a result, the steel maker Corus topped the FTSE 100 risers' board, with a 4 per cent gain to 43.5p. In a note, JP Morgan said that although China's steel output was raising fast, its consumption had kept pace with that.

Miners also benefited from the news, with Antofagasta 39p higher to 1100p, BHP Billiton 18.5p better to 647p, Anglo American 35p up to 1249p, Xstrata 25p stronger to 951p, Rio Tinto up 36p to 1631p and Vedanta 19.5p healthier at 396.75p.

Wolseley, the building materials supplier, also found itself in favour, after good results from its US peers and positive comments from the brokers UBS and JP Morgan. JP Morgan noted, however, that risks to Wolseley were posed by interest-rate increases and commodity-price deflation.

Regus, the serviced offices group, fell more than 5 per cent to 92.5p, as bid speculation faded. The buyout specialist Blackstone, which was rumoured to be ready to pounce, said it had no interest in Regus. Elsewhere, there was some comment surrounding Panmure Gordon, the broker that recently bought Durlacher. It seems that the future of its AIM Bulletin newsletter is uncertain after the writer of this publication, Andrew Hall, took voluntary redundancy.

It is understood that Panmure has received a number of approaches from parties interested in taking on the newsletter, which is widely read in small-cap circles. The broker insisted, contrary to gossip, that it has no intention of reducing its exposure to the small-cap end of the market. The logic of the Durlacher deal was to increase small-cap business, the broker said.

Word has it that White Nile, the oil explorer with interests in Sudan that has its shares suspended, will today provide a full update. It is expected to publish a document detailing the terms of its agreement with the national oil company of South Sudan, Nile Petroleum. Its shares could resume trading from Monday.

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