Market Report: Cadbury fizzes on rumours of a US buy-out

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City punters piled into Cadbury Schweppes yesterday inspired by rumours that the soft drinks to chocolates giant is being staked by Kohlberg Kravis Roberts & Co. According to the story, the US private equity giant is considering a move to buy both Cadbury and fellow drinks group Britvic and then merge the two businesses together.

City punters piled into Cadbury Schweppes yesterday inspired by rumours that the soft drinks to chocolates giant is being staked by Kohlberg Kravis Roberts & Co. According to the story, the US private equity giant is considering a move to buy both Cadbury and fellow drinks group Britvic and then merge the two businesses together.

The talk certainly got traders interested in Cadbury, which saw its stock jump 10p to 541.5p.

However, analysts were quick to argued that KKR faces an uphill struggle if it is to pull off such a coup. First, with a market value of £11bn, Cadbury is by no means an easy acquisition for the private equity firm even if it does happen to be the world's largest.

Second, although merging the company with Britvic makes sense, KKR will have to work hard to convince all its shareholders to sell out. These include InterContinental Hotels, restaurant operator Whitbread, Allied Domecq and PepsiCo. The last decision from the four about the future of Britvic seemed to suggest that the business would be floated some time within the next few years.

Meanwhile, the FTSE 100 index gave up 5 points to 5,072 amid profit taking after Friday's surge which took the index to a three-year high.

Cable & Wireless lost 1.25p to 145.75p after KBC Peel Hunt poured cold water on reports that France Telecom is looking to buy the company. KBC said: "We do not believe that FT has the time, the patience or the ability to split up the C&W group."

Hedge funds shorted Dixons, down 1.25p to 154p, as they took the view that tomorrow's full year results from the retailer are likely to disappoint.

The soaraway crude oil price spelt good news for some stocks but weighed heavily on others.

It boosted oil producers and explorers, helping BP 4p higher to 590.5p and BG Group 6.75p up to 455.75p. Second line players registered even more dramatic gains. Venture Production jumped 13.75p to 360p, Dragon Oil put on 3.25p to 107p and Soco International added 9.5p to 547p. However, those companies who use oil as a raw material had a tough time of it yesterday. In the chemicals sector, ICI dropped 7.5p to 266.5p while Elementics lost 2.75p to 50.75p. Among airlines, which will see a substantial rise in their fuel bill should the oil prices continue its soar, easyJet dropped 5.25p to 242.75p and British Airways lost 4.5p to 273p.

Northern Foods lost 1p to 159.75p as ABN Amro suggested that the chilled foods group is in desperate need of further restructuring and warned that such reform could negatively impact the business's performance in the short term. The Dutch broker said: "We believe Northern must embark on further restructuring in order to make meaningful progress on improving its profit margins but this won't be without large cash costs."

According to ABN, such a move would definitely see Northern Foods miss its forecasts and is likely to put its dividend in danger. As a result, it urges investors to reduce their holdings in the stock.

Elsewhere, Workspace, up 0.5p to 245p, saw Harry Platt, its chief executive, bag a £400,000 profit from the exercise of share options. Mr Platt exercised an option over 210,000 shares in the office space group at a price of 45p and then sold the stock in the market at 285.25p.

Among small-caps, Crown Corporation, down 3.5p to 48p, was a major talking point. The company claims to have an asset value of 240p a share but strangely the bulk of this is held in the form of a promissory note (basically an IOU) at South America's Banco do Brasil. Given Crown's share price stands at such a discount to its asset value, the market is clearly sceptical that the promissory note is of any value at all.

However, Stuart Pearson, the investment company's recently appointed chief executive, is determined to show the City that the note, worth a princely sum of $660m, can be relied on. Word has it he will soon travel to Brazil to hold talks with Banco do Brasil aimed at getting it transferred to a bank in a part of the world with a more stable banking system - most probably either the US or Europe. This, the company hopes, will reassure investors and help Crown shares recover.

Meanwhile, Crown is also said to be working on a new investment. According to a well-informed financial source, it will unveil a deal soon, possibly before the end of the week, in the form of a joint venture.

Finally, brokers expect Z Group to enjoy a strong maiden session today. Panmure Gordon is floating the technology group and has raised £3m for the company at 108p. Word has it that the fundraising was heavily oversubscribed, making it likely that those investors who missed out will scramble to get their hands on stock today.

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