Market Report: Pre-Christmas bid rumours sweep the City

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The Independent Online

City dealing rooms were awash with rumours yesterday that a fresh round of merger and acquisition activity is about to break out in the run-up to Christmas. If you believe the latest gossip from the Square Mile, a major deal is imminent. Dealers were tipping the usual suspects for takeover. Among them was BG Group, up 14.5p to 555p, Rank, 6.25p better at 315.25p, and Mowlem, 5p stronger at 195p.

Of the trio, Mowlem has admitted that it has received an approach from its construction peer, Carillion. Market professionals believe that Carillion will have to pay up to 240p-a-share if it is to win Mowlem but suggested the tie-up makes great sense. A deal will give a sizeable boost to Carillion's private financial initiative business and create a combined company with turnover of £4bn.

A move on Rank is not seen as being imminent. Analysts noted that anyone interested in the leisure conglomerate will probably wait for the group to dispose of its troublesome Deluxe media business before they make a move. But once this division is sold, Rank will become a great acquisition for a private-equity firm because of its solid cash flows and impressive asset base. The group is due to unveil a trading statement on Tuesday.

PartyGaming dropped 3.25p to 114.25p as Goldman Sachs suggested that the group's PartyPoker site may be losing market share to Paradise Poker, which is owned by its rival Sportingbet, 9.5p higher at 365p. Smith & Nephew added 2.5p to 516.5p as Citigroup ushered its top clients into the medical devices group. According to the broker, 2006 will see growth accelerate at the company because of a series of product launches. It believes the rest of the sector will experience a deceleration.

Punters ignored JP Morgan's view that Royal & SunAlliance is unlikely to be bought until it has successfully ring-fenced the liabilities at its US division, and chased the insurer 4p higher to 117.5p. They were excited by the old rumour of a bid for RSA from France's Axa. GlaxoSmithKline jumped 21p to 1,450p as brokers came away from Wednesday's research and development day in a bullish mood. Merrill Lynch was among them and was particularly upbeat about the prospects for the group's Eltrombopag cancer drug.

Stagecoach denied the rumours that its management is planning to take the bus operator private. Despite the comments, Stagecoach shares gained ground, rising 2p to 120p. Blacks Leisure rose 8p to 440p as David Bernstein, the chairman of the retailer, bought 100,000 shares at 436p. Meanwhile, the chief executive, Russell Hardy, acquired a more modest 25,000 at the same price. Alan Jackson, the chairman of Restaurant Group, pocketed £370,000 by exercising options over 400,000 shares at 45p and sold 350,000 of them at 151.5p. Restaurant Group dropped 2.25p to 147p in response to the sale.

EasyJet was in demand, gaining 12.25p to 342.25p, after Citigroup upgraded its stance on the no-frills airline to "buy" from "hold". The US broker believes easyJet's new management is likely to be more focused on financial discipline than the previous one and it argued it is well incentivised to boost shareholder value. Hence, Citigroup set a 400p price target on the stock and assured investors that should the new management fail there is always the possibility that Icelandair, the group's second-biggest shareholder, will buy the airline. Soco International rose 6p to 751p after boasting of an oil find at one of its wells in Vietnam. But analysts said that given the nature of the find, any guidance on the value of the discovery is impossible at this stage. In the same sector, Victoria Oil & Gas dropped 5p to 100p amid talk that the group is looking to raise £7m via a equity fundraising. Word has it that Victoria was putting the finishing touches together last night for a placing priced at 100p. A decision by the group to raise new money from the City would certainly be a smart move, given the 100 per cent jump in the value of its share over the past month.

JKX Oil & Gas was unchanged at 214p despite the sale of 10,000 shares at 227.25p by Lord Fraser of Carmyllie, the chairman of the explorer.

Finally, Biofuels was said to be about to return from suspensions after securing new funding. The biodiesel group is believe to have won the backing of Royal Bank of Scotland and it may see its shares re-listed as soon as today, according to market whispers.

Last month, Biofuels was suspended at 145.5p as the company went away to try and win fresh cash. At the time it warned that the future viability of the company was dependent on it being successful.

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