Market Report: Gallaher bid talk... is it more than a pipe dream?

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The Independent Online

It has been a while since a serious bid rumour did the rounds in the tobacco sector, but the chat in the market yesterday was that a long-awaited offer for Gallaher could be in the pipeline.

Gallaher, the maker of cigarette brands Benson & Hedges and Silk Cut, has a strong position in the UK market but with a value of £7.2bn including debt the company is within easy reach of most competitors. The word is that Spanish tobacco giant Altadis is lining up a bid for the company that could value the shares at 1,200p each. Altadis is seen by most traders as a viable bidder because of its relatively small interest in the UK tobacco market, meaning there would be few regulatory hurdles preventing a bid.

One trader said: "Given its size, Gallaher is the most likely bid target in the UK tobacco sector. Tobacco companies are producing excellent numbers, helped by the fact that they have slashed costs because they can't advertise or market their products any more. But the cost-cutting won't last forever and the next logical step is to use some of their cash piles for acquisitions." Gallaher closed 15.5p better at 934.5p.

Home Retail Group, the owner of Argos and Homebase, was in focus before today's debut results. Weekend reports linked private equity giants The Blackstone Group and Kohlberg Kravis Roberts with a bid for the company, less than six weeks after it demerged from GUS. Home Retail closed 9.5p better at 426p, while credit rating agency Experian, the other remnant of GUS, fell 2.5p to 600p before its own debut numbers, also due today.

The ITV, NTL and BSkyB saga continues to attract a lot of interest among brokers. Deutsche Bank and Collins Stewart both downgraded numbers for BSkyB after the satellite broadcaster paid 135p per share for a 17.9 per cent stake in ITV on Friday. Collins Stewart was especially harsh on BSkyB, cutting its target price for the shares to 420p and urging shareholders to ask why the company has spent £1bn on ITV and the same amount on trying to enter the home broadband market. BSkyB shares closed 4p worse at 533p, while ITV recovered from heavy early selling to close 1.25p weaker at 114.5p.

London shares staged a decent rally after an early sell-off saw the blue-chip index lose 43.7 before noon on the back of weaker oil and banking stocks. The FTSE 100 closed 12.5 better at 6204.5.

Restaurant oven and fridge maker Enodis reports final results today, and after having rejected an offer from Aga Foodservice last week, valuing the company at 197p per share, investors are expecting a strong set of numbers. Consensus forecasts are for pre-tax profits to rise more than 40 per cent on the same period last year, but any bad news will leave investors wondering why they were not given the opportunity to accept the offer. Enodis ticked 1.75p firmer to 200p, while Aga lost 1.75p to 414.25p.

James Webster, an executive director of Spectris, the automation controls group, took advantage of the strong run the shares have been on this year to trim his stake in the company. He sold 10,000 shares at 699p, sending the stock 12p worse by the close to 695.5p.

Mid-cap mining stocks were in demand after last week's heavy selling as precious metals prices rallied in the futures markets. Aquarius Platinum added 49.5p to 1,122p and Randgold climbed 30p to 1,148p. Both stocks lost more than 6 per cent of their market capitalisation last week.

Car dealer HR Owen was high on the losers' list, dropping 12.5p to 154p as chief executive Nicholas Lancaster confirmed he would not be leading a management buyout of the group. Unlike Kevin Lomax, who lost the chairman's job at Misys after failing to come up with a good enough offer for the company, Mr Lancaster will be staying on at HR Owen.

Hamsard, an AIM-listed software solutions group, revealed a placing at 2.5p on Friday, which will raise £2m of new funds. On the face of it, not much of a big deal - but the shares were trading at 15p before the announcement, and many traders have taken the huge discount as a sign that the company is in dire straits. The shares fell another 3p yesterday to close at 4.5p, a 40 per cent fall on the day, a new all-time low and more than 90 per cent below where trading began when the company listed just 18 months ago.

Small-cap investors will be on the lookout for Medusa Mining, which begins trading on AIM today. The company has raised A$11m (£4.5m) through a placing with institutions in Australia and the UK. The shares were placed at A$0.65.