Market Report: House of Fraser weakens amid bid concerns

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The Independent Online

To lose one suitor is unfortunate; to lose two in quick succession would raise serious questions about what is turning them off. The private equity group Apax Partners dropped an offer for the retailer House of Fraser like a hot potato in March, and the story doing the rounds in the market yesterday was that Baugur, the Icelandic investment group, is poised to do exactly the same thing three months later.

Baugur is expected to offer House of Fraser shareholders 150p per share for the group, but rumours have been rife in the last couple of sessions that a pensions deficit is making Baugur think twice. The word in the market was that if Baugur offers much less than 150p the bid has little chance of getting approval from the House of Fraser board. However, if there are concerns over pension deficits, Baugur may be tempted to go for less, or even walk away.

However, many traders seem to think that the bid is still very much on, but there is concern that talks began nearly four weeks ago and there is still no sign of a firm offer. Not surprisingly, some money came off the table, and House of Fraser shares closed 4.5p weaker at 128p.

A couple of unfashionable blue-chip stocks led the main index higher, as the caterer Compass Group and the hygiene and security group Rentokil Initial were well bid. Both stocks have been out of favour for a long time with investors, but technical traders bought into Rentokil as it bounced off resistance levels and Compass continued to attract speculative support. Rentokil added 6.5p to close at 149.75p while Compass climbed 9p to 259p.

Associated British Foods continued to find buyers in the wake of Wednesday's announcement of a joint venture to develop biofuels with BP and DuPont, closing 21.5p firmer at 753p. The influential US investment bank Goldman Sachs became the latest broker to throw its weight behind the deal, saying that it could generate £100m-£150m of extra profits for the group by 2009.

Once again, the London equity markets were quiet, with the World Cup and racing at Ascot keeping traders glued to their television screens rather than their price screens. A strong morning, which saw the FTSE 100 index peak at 5736.8, caved in to profit-taking as the Dow Jones quickly moved to a 40-point loss. London shares closed the session slightly better, as the index added 19.1 to close at 5684.1.

A strong house-building sector helped the FTSE 250 gain 56.9 to 9139 as good results and an encouraging outlook statement from Crest Nicholson and another bout of bid speculation saw every stock in the sector end the session in positive territory. Barratt Developments, often seen as a possible predator by traders, added 30p to close at 919p, while Persimmon, the only sector representative in the blue-chip index, surged 47p to close at 1,193p. Surprisingly, Crest was the worst performer, firming 0.75p to 516p.

It has now been almost four years since the engineering consultancy WS Atkins teetered on the brink of collapse, as the shares tumbled to below 50p because of clouds over its accounting and invoicing policies. Since then, the shares have been among the best performers in the London markets, and a strong set of numbers helped the shares to close at 840p yesterday, up 67p, a staggering 1,600 per cent rise in the past four years.

Aquarius Platinum was well bid again after strong gains on Wednesday. Some mining investors believe that the company is a likely target in the next round of consolidation in the mining sector, and with precious metals prices firming the shares added another 35.5p to close at 720.5p, a 5.2 per cent rise.

Dimension, the struggling information technology group, attracted some selling pressure after the stock fell through support levels at 40p. For technical traders, the shares now look like they could have further to fall, and dealers noted a sharp increase in the number of short positions being taken out in the stock. Dimension fell by another 0.5p to close at 37.75p.

Joining it near the top of the FTSE 250 fallers list was Spirent Communications, fresh from posting grim trading numbers a week ago, as it too fell through a crucial support level and closed 0.75p weaker at 38.75p.

Ceramic Fuel Cells, the Australian alternative fuel development group that listed on Aim in March, attracted speculative interest as a rumour did the rounds that the company is poised to sign a potentially lucrative deal with the utility group Scottish Power. Traders said that an announcement could easily send the shares back up towards the 34.5p they hit soon after the listing, as the stock climbed 0.25p to 24.75p.

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