Market Report: Reed galvanised by Thomson's £4bn sale

The Canadian publisher and information group Thomson made all the headlines last week because it is considering a bid for Reuters. What passed some investors by was the price it achieved for its educational publishing arm - a sensational $7.8bn (£3.94bn), when even the most bullish analysts had been looking for $6bn. The broker Collins Stewart sees positive implications for Reed Elsevier, which is also selling its educational publishing unit. So positive that it believes Reed shares could be worth 930p - 40 per cent above the current price.

The analyst Simon Wallis believes valuing Reed's total discounted cash flow on a multiple of 6 times pre-tax earnings, a typical private equity buyout valuation, gives the shares a potential value of 930p. The Swiss bank UBS also believes there is more upside in Reed, giving the stock a more modest 740p price target. Shares in Reed firmed 3p at 666p while the rivalPearson rallied 17.5p to 908p on news that it has acquired the online learning group eCollege for $477m.

After leading the blue-chip charge last week, mining stocks came in for some severe profit-taking. Although there seems to be widespread support for a bid by BHP Billiton for Rio Tinto, traders said that any approach is still likely to be some time away. One market maker said: "Rio Tinto is up the best part of 40 per cent in a month, so it is no surprise that there are now more sellers than buyers."

Mining stocks occupied the top eight spots on the FTSE 100 fallers. Rio shed 127p to close at 3,525p, with Lonmin not far behind with a 135p fall to 3,790p after a storming recent run. BHP Billiton, Rio's prospective suitor, shed 24p to 1,199p.

Speculation is intensifying that BSkyB will offload its 17.9 per cent stake in ITV. Shares in the latter added 0.8p to 120.8p in early deals before falling in line with the rest of the blue chips, but the word in the market is that if someone is prepared to match the 135p BSkyB paid for the stake ITV could be in play for a bid again. BSkyB climbed 6p to 632p, boosted by the stake sale talk and recent bullish subscriber numbers.

Traders continued to bank profits on the back of last week's wave of merger and acquisition newsflow. After a positive start to the session, London shares moved into negative territory and even a decent start on Wall Street was not enough to tempt buyers back in. The FTSE 100 closed 10.2 worse at 6,555.5.

Recruitment stocks were in focus as the broker Panmure Gordon initiated coverage of SThree, giving the shares a "buy" rating and a 585p price target. Goldman Sachs cut Michael Page from its "conviction buy" list, but maintained a "buy" rating on the shares. Goldman noted the shares have performed strongly and that growth on its web-based business is slowing. SThree rallied 13.75p to 511.5p while Michael Page shed 9p to 566.75p.

There has been speculation about a round of consolidation in the oil services sector for weeks, and talk that the US giant Nabors is mulling acquisitions prompted another round of bid talk at Abbot Group, 10.5p firmer at 278.25p. The broker Cazenove told clients Abbot would give Nabors the step up in international oil services presence it is seeking, although it trimmed its forecasts for 2007 and 2008. Abbot added 8.75p to 276.75p while the rivals Expro International, up 11p at 865.5p and Lamprell, up 11p to 325p, were also in demand.

The finance software provider Misys has been on a decent run this year, climbing more than 20 per cent to open at 254.5p yesterday. However, Merrill Lynch is struggling to see more upside in the shares and cut its rating from "buy" to "hold" as the shares hit its 250p target price. The US broking giant wants to see more evidence that management is making progress on turning the business around before adjusting its price target higher, and the shares fell 7.25p to 247.25p.

In the small-caps, traders rubbed salt into Sheffield United shareholders' already gaping wounds by driving shares in the newly relegated football club 4.75p lower to 13.25p. Relegation from the Premier League will cost the company between £30m and £50m, and the feeling among traders is that a legal challenge to the league's decision not to dock West Ham points will fall flat.

The air conditioning-installation group Worthington Nicholls fell victim to mild profit-taking, shedding 8p to 172p. Perhaps investors taking some money off the table is inevitable, with the stock up almost 300 per cent over the past 12 months. However, the word in the market is that more deals are in the pipeline.