Market Report: Fears over bid premiums cap gains in FTSE 100

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The Independent Online

The London market's inability to hold on above 6,000 has become a hot topic around trading floors as some observers feel the market could weaken further as the momentum built up by rumours of corporate activity dries up.

One trader said: "There is hardly a stock that does not have some sort of takeover premium in the price, but realistically very few deals will actually happen. Fundamentally, the London market remains strong but in the short term there is a lot of unfounded speculation in these prices."

The Anglo-Asian banking group Standard Chartered gave traders food for thought as a deal to sell 12 per cent of the company to the Singaporean investment fund Temasek rules out, in effect, a takeover bid in the short term. The broker Dresdner Kleinwort Wasserstein reiterated its "sell" stance on the stock, noting that earnings are likely to disappoint on the current valuation even if there is no substantial slowdown in Asian growth. The shares lost 42p to close at 1,482p, among the worst performers in the FTSE 100.

GUS, despite announcing that it will demerge its credit search operation Experian as well as its retail businesses Argos and Homebase, gave traders another unwelcome reminder that takeover rumours don't always lead to consummated deals. Many had hoped GUS would sell Experian to the highest bidder, having already turned down a £7bn bid from a consortium of private-equity houses. However, the six to 12 month time projection on the demerger took some of the gloss off the deal, giving sellers the upper hand as GUS closed 36p lower at 1,070p.

Further weakness in telecoms - with Vodafone down 5p at 119.5p and BT Group off 4p at 226p - and mining stocks - led by Xstrata, 31p lower at 1,807p - was the main cause of the slide in the leading index. The FTSE 100 closed 36.5 lower at 5935.7, having traded at 6004.3 earlier in the session.

The brewer Scottish & Newcastle led the early risers on the back of talk that SABMiller was poised to launch an offer for the company. However, many traders believe that Carlsberg is far more likely to bid for the group because of their joint ownership of the Russian brewer BBH, which contributed strongly to S&N's overall 9.5 per cent increase in pre-tax profits for 2005.

Shares in S&N, the brewer of Kronenbourg, Strongbow and Foster's, were 15p better at 561p, a three-and-a-half-year high, before profit taking saw the stock drop back to close at 545p, down a penny, with SABMiller 4p weaker at 1,101p.

Exxon's interest in BG Group has not waned, according to traders, who feel the British oil and gas exploration and production group's interests in Kazakhstan is what the US giant is keen on acquiring. Although the stock traded 5p lower to close at 704p, the talk is that Exxon will attempt a knockout bid valuing the company at 900p per share, or about £31.6bn. Again the rumours were not enough to keep BG shares in the black, closing at 703.5p, a fall of 5.5p.

Just like on Monday, Alliance & Leicester was one of the few bright spots in a dull London market. Shares in the UK's fifth-largest bank rallied 11p to close at 1,179p. One senior trader said: "This is not a stock to be short of", with a potential bid coming from France's Crédit Agricole sending the shares to an intra-day high of 1,208p, a rise of 40p.

The star performer in the mid caps was Dana Petroleum as the company reported an increase of 406 per cent in net earnings to $64m (£37m). The company does not hedge its earnings against the price of oil, and so has benefited in full from the strong commodities markets. The shares were well bid all day, and closed 75.5p better at 1,085p.

IQE continued to perform well in the small caps, gaining another 1.88p to close at 15p, as traders and analysts continued to warm to last week's results. One senior broker said: "When we left the presentation by the company we all said that the shares were heading straight for 20p, and it looks as if we were all right."

Playtech enjoyed a strong first day's trading on AIM, as the software supplier to the online gaming industry became the largest public offering so far this year. It raised £265m in a placing at 157p through its joint brokers Collins Stewart and Seymour Pierce, and closed the session at 273p, giving the company a value of £573m.

Finally, traders will be looking out for the debut of Cashbox today. The automatic teller machine manufacturing and management group was due to float a couple of weeks ago but ended up raising far more money than it had anticipated. The terms of the float had to be amended, and the stock is expected to open at about 20p this morning.

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