Market Report: ICI rises on prospect of three-way bid battle

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Bid stories at the paints and chemicals group ICI have done the rounds countless times in recent months, but the word in the market yesterday was that German rival BASF is considering making an offer for the company that will begin at more than 600p.

ICI has long been considered a top bid prospect but until now the favourites to make a bid have always been Akzo Nobel, the Dutch group, and Dow Chemical. With traders' attention focused on bid talk in the energy sector, ICI crept up the blue-chip leaderboard all afternoon, and by the close the shares were 11.5p better at 518.5p, with almost treble the average daily volume changing hands. Traders have their fingers crossed that a first bid could lead to all three battling over ICI.

Prudential was also in focus, with the word going around that activist hedge funds are increasing their stakes and will attempt to force the company into breaking itself up or putting itself up for sale. One trader said: "If a handful of hedge funds can force ABN Amro into putting the 'For Sale' sign up then I see no reason why that can't be duplicated elsewhere. Prudential would seem like a logical target." Shares in the Pru closed 9.5p firmer at 731.5p.

Housebuilders were out of favour across the board on the back of concerns over UK interest rates, led south by blue-chip Persimmon, 16p worse at 1,229p. Barratt Developments, soon to become the second house builder in the FTSE 100, also found few friends with a 10p fall to 1,025p.

Investors are getting excited about the pending demerger of Cadbury Schweppes' US soft drinks arm as the shares closed 21p firmer at 703p. The word doing the rounds yesterday was that prior to making a further announcement on the demerger later this month, the company could be poised to sell its Butterkist popcorn unit. The company announced that it plans to increase investment in low-sugar sweets and chocolate, but if traders are right there might not be much left of Cadbury Schweppes on the public markets by the time that investment bears fruit.

Blue-chip shares rallied strongly in London on the back of yet more merger and acquisition speculation and strength in mining and banking stocks. The big bid story surrounded the gas supplier Centrica and Russian giant Gazprom, although a London-based spokesman for the latter was reported to have denied that a bid is imminent. Centrica closed 7.75p firmer at 367.25p, having been 18.25p firmer in early deals, with the FTSE 100 62.4 better by the close at 6567.5.

Bid speculation continued to drive shares in the retailer JJB Sports higher following the sale of Dave Whelan's 29.9 per cent stake on Friday. The shares closed 8.25p firmer at 257.75p. Mr Whelan stepped down from the board on the back of the sale, which netted him and his family almost £190m. The buyers are the Icelandic finance group Exista and Chris Ronnie, who will take over as deputy chief executive. However, the broker Seymour Pierce poured cold water on bid hopes by reiterating its "hold" rating on the stock.

Second-line property stocks were in focus as investors took last week's sell-off as a buying opportunity. Helical Bar gained 19.75p to 432.75p, with St Modwen not far behind after firming 23p to 645.5p.

The music publisher EMI Group attracted the attention of bulls and bears after reports did the rounds that major shareholders at Warner Music were reluctant to back the US group in a counterbid against the private equity group Terra Firma. The shares fell 4.75p to 268.25p in early deals before afternoon rumours began circulating that Warner Music will indeed launch another bid, helping the shares to recover to close 2p worse at 271p.

Down in the small caps, AFC Energy added 5p to close at 23.25p after the fuel cell technology developer was awarded a contract worth an initial $13.5m over 10 years to supply a project producing electricity and drinking water in rural Indonesia. The shares listed in April and have got off to a less-than-inspiring start on the public markets, falling more than 25 per cent from their initial listing price.

International Ferro Metals shed 3p to 105.5p despite some bullish coverage from the broker KBC Peel Hunt. The broker believes that the increased capital cost of expansion at the South Africa-based producer of ferrochrome will be more than offset by increased production. KBC upped its price target from 177p to 210p.