Market Report: Hedge fund activity nudges Jarvis upwards

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Professional investors were busy bagging handsome profits from bear positions in Jarvis yesterday, and as they moved to close their bets they pushed shares in the beleaguered support services group 0.33p higher to 3.5p. Hedge funds were quick to take sizeable short positions in Jarvis when the group unveiled the terms of its financial restructuring last month. They were right to do so, as back then the stock traded at up to 9p.

Jarvis's restructuring, a debt-for-equity swap, will see its creditors take control of the company. Creditors will cancel the group's £350m debt pile and in return will be given a 95 per cent stake in Jarvis. The whole reform is expected to be completed by the end of the month and will see present shareholders left with just 5 per cent of the company.

And the dilution facing investors does not stop there. After the debt-for-equity swap has been enacted, Jarvis plans a £50m fund raising via the issue of yet more new shares. Also, according to the terms of the debt agreement, some of Jarvis's lenders will be granted warrants which, once exercised, will only add to the destruction of value for shareholders.

Even after the whole refinancing of Jarvis is complete, the company still looks to be a far from enticing investment. Although the group will be pretty much debt free, it is unlikely to start generating cash until well into next year, and after that will struggle to achieve much in the way of growth. A number of hedge funds were quick to realise this last month and, via bear positions, have profited from it in a big way. Most have registered a return of more than 50 per cent in the six weeks since the terms of the restructuring were announced.

In the FTSE 100, BSkyB dropped 5.5p to 568.5p after reports that Apax Partners is joining a consortium looking to bid for television rights to Premier League football matches. Such a development will certainly undermine Sky's dominance of top-flight football broadcasting. Meanwhile, the FTSE 100 itself rose 6 points to 5,318.

Pearson fell 7p to 687.5p after Credit Suisse First Boston cut back its rating on the media group to "neutral" from "outperform". Since the beginning of the year, Pearson has easily outperformed the wider media sector, notching up a 10 per cent rise in its stock. The Swiss broker is sceptical that it can register further gains.

GlaxoSmithKline lost 11p to 1,335p amid fresh concerns about the safety of its antidepressant, Seroxat. According to research published in BMC Medicine, suicidal thoughts were three times more common among those taking Seroxat than those taking a placebo.

Acambis retreated 5.75p to 245p as investors reacted to news that Bavarian Nordic, a Danish rival, had filed a patent infringement action against the UK group over its smallpox vaccine. In addition, the Danish group alleges that Acambis has used some of its trade secrets in developing the vaccine. Acambis says these allegations are without any foundation.

Analysts believe that if Bavarian Nordic is successful with its patent case it will be in a position to either stop Acambis from being able to import the smallpox product into the US or be able seek a royalty for each infringing dose sold in the US. Analysts warn that with regard to the trade secrets claim, the Danish group could claim substantial financial damages. Bavarian Nordic and Acambis are rivals and are at present competing for a large smallpox vaccine contract from the US government.

Vague bid rumours pushed Woolworths 1p better to 37p. Brambles Industries managed to register a 0.25p rise to 327p despite a downgrade from Merrill Lynch before its full-year results tomorrow. The US broker cut back its rating on Brambles to "neutral" from "buy" on valuation.

There was brisk trading in Crosby Partners, down 3p to 61.5p. Techpacific Capital, the Asia Pacific-focused merchant bank's biggest shareholder, was heard to have sold part of its 85 per cent stake to various London-based institutional investors. Crosby is a fast-growing company and is sitting on a huge profit from an investment in IB Daiwa, a Japanese conglomerate. It has also launched a hostile bid for an Australian copper project which, if successful, could also prove to be a major money-spinner for the company.

SDL firmed 1.5p to 148p on hopes it will soon secure a sizeable contract in China. Debtmatters, which helps consumers with excessive debt, rose 4p to 104.5p on talk that trading is booming at the group. Finally, Victoria Oil & Gas, steady at 50p, unveiled a bullish drilling report from a gas prospect in Russia. Victoria shares have had a great run in recent weeks and are well up on last year's 27p float price.

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