Market Report: Diageo's General Mills stake excites the gossips

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The Independent Online

The sale of Diageo's 22 per cent stake in General Mills, the maker of Cheerios cereal, Pillsbury dough and Yoplait yoghurt, is back on, according to the latest signals to the City.

The sale of Diageo's 22 per cent stake in General Mills, the maker of Cheerios cereal, Pillsbury dough and Yoplait yoghurt, is back on, according to the latest signals to the City.

Analysts at one broking house have come away from a meeting with Diageo's management convinced that a £2bn sale process is in train and a deal could come sooner rather than later. The process was put on hold when the Securities & Exchange Commission, the US financial regulator, began probing GM's accounts on suspicion it has been shipping excessive product to supermarkets in order to inflate sales.

Smith Barney, which abandoned its "buy" recommendation on Diageo shares as a result of its hunch, reportedly thinks that discussions between GM and the SEC are at an advanced stage. Diageo shares dipped 3p to 724p yesterday as the speculation swirled.

However, there were plenty of dealers who took the suggestion of an imminent sale more positively. Whereas Smith Barney argued the disposal would mean lower earnings per share and a dip in the Diageo share price, others think it will allow the company to step up the pace of share buy-backs, improve the company's credit rating, and help turn it into a more focused drinks group.

Diageo's up-and-down day reflected that of the wider market, which was unable to sustain an opening rally and ended with the FTSE 100 2.5 points in the red at 4,428.9. All the usual worries about the high oil price, and its likely dampening effect on global growth, bubbled back to the surface as it became clear that Saudi Arabia's promises of increased supply had failed to stop a further rise in the price of crude yesterday.

The mining stocks, which have become the most sensitive to the market's view of future economic demand, were first up strongly, then down among the worst performers. Anglo American swung from a 15p gain to close at 1,118p, a 14p deficit; BHP Billiton gave up an early gain of 7p to close down 5.5p at 458.5p; and even the Chilean copper miner Antofagasta, which had been up 2.6 per cent at one point, closed up just 4p at 904p.

There were bad falls, too, for some pubs companies as investors fretted about the new parliamentary investigation into beer-supply agreements. The intoxicating headlines generated by a historic ruling last week that an agreement tying a pub tenant to buy beer from his landlord fell foul of competition laws, might lure MPs into mounting a wider investigation aimed at bringing down the price of beer. Investec calculated that a 10 per cent cut in beer prices would wipe £60m from Enterprise Inns' profits, for example, and that company's shares tumbled 4.5p to 580.5p.

Changes to the MSCI series of stock market indices at the end of this week continued to give dealers work to do on a subdued trading day. Marconi, up 19p to 619p, and London Stock Exchange, up 7.5p at 391p, were among those benefiting from inclusion.

Directors in some of the UK's biggest companies were putting their money where their mouths have been, snapping up additional shares after strong recent results. Man Group's chief executive, Stanley Fink, spent half a million on 30,000 shares in the hedge fund manager, and immediately saw his paper fortune rise to £77m as the stock rose 16p to 1,649p. And Mothercare, the resurgent baby clothes retailer, said Ben Gordon, the flash chief executive, and Steven Glew, finance director, had topped up their holdings, but the stock dipped a penny to 332p. And further down the market, there was yet more director share buying at Zi Medical, the maker of hi-tech drips for hospitals. This time the chief executive, George Gallagher, picked up 7,500 shares at 11.75p, but the highly rated stock dipped by 0.75p to 10.75p.

The advantages of trading down to the junior AIM market last year were apparent as NetBenefit unveiled the £2.5m cash and shares acquisition of rival domain names and web-hosting business Easily Ltd. Acquisitions and share issues are easier and cheaper on AIM. NetBenefit also said trading was ahead of expectations, so its shares leapt 7.5p to 49p.

Observers of the AIM market were worrying about the arrival of a new company, Wynnstay, which saw its shares rise from a placing price of 190p to 212.5p on its first day of dealings. The company, worth £18m last night, is an agricultural supply business operating in Wales and the Midlands. The worry is it will end up being confused with Wynnstay Properties, the £8m property developer, which many trading screens are still abbreviating to Wynnstay, and which last night had a similar share price of 258.5p.

There were rumours of a profit warning in Character Group, the toys and digital cameras group which reported disappointing interim profits a month ago. Much hope for the full-year is vested in its £80 foot-tall dancing robot, Robosapien, but the shares hit a low for the year, off 1.5p at 89p.