Market Report: Renewed bid talk sparks interest in MFI Furniture

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Those who made a killing from buying into Abbey National prior to the bid from Spain's Banco Santander were busy piling into MFI Furniture yesterday. They reckon a private equity bid for the retailer is imminent and hope to cash in on it. Now investors may have a feeling of déjà vu about the return of the MFI rumour but there again talk of an offer for Abbey National from Banco Santander was not new when it did the rounds of the City on Thursday.

Those who made a killing from buying into Abbey National prior to the bid from Spain's Banco Santander were busy piling into MFI Furniture yesterday. They reckon a private equity bid for the retailer is imminent and hope to cash in on it. Now investors may have a feeling of déjà vu about the return of the MFI rumour but there again talk of an offer for Abbey National from Banco Santander was not new when it did the rounds of the City on Thursday.

MFI ended 2.25p better at 136.25p as 19.3 million shares changed hands. Bulls of the stock reckon a bid could come as early as next week and will be pitched at the 180p level. Over the past month, bulls and bears of MFI have been locked in an almighty tussle. Should the speculation of an offer for MFI come true, those short of the stock will face huge losses. But at the close of business yesterday, dealers reported a 30 million share short position in the stock, meaning that bears were staying firm, convinced that no one is planning to buy the group.

Another story surrounding MFI was talk of tension between the management and those who run its Howden unit. The business sells building materials from warehouses on industrial parks and is by far the best-performing part of the company, which is seeing its traditional retail operations struggle amid growing competition. Thursday's results revealed a 12 per cent drop in like-for-like sales at MFI's retail unit, while Howden registered a 26 per cent jump in sales. Gossips reckon pressure for the sale of Howden is growing, despite attempts by John Hancock, MFI's boss, to play down such talk. Could a private equity house been planning a break-up for the group?

Meanwhile, the banking sector was set alight by Banco Santander's move on the UK mortgage bank. Abbey itself soared 18 per cent, or 87p, to 580p, while Bradford & Bingley put on 7.5p to 267p. Alliance & Leicester rose 45.5p to 843p and Northern Rock added 10.5p to 711p. The FTSE 100 also finished the week on a positive note, up 20 points at 4,326.3. Reuters was the worst performer on the blue-chip index, falling 8.5p to 327.25p, amid speculation it is close to the acquisition of a rival financial data provider, Moneyline Telerate. Such a deal is likely to see Reuters pay about $300m (£164m) via a mixture of cash and shares, analysts suggest. Moneyline Telerate is owned by a private equity division of JP Morgan Chase.

WPP rose 1.5p to 516p amid ever-intensifying rumours that the advertising giant is mulling a bid for its US rival Global Grey. Analysts at Credit Suisse First Boston said they would support WPP if it tried to execute such a move. "We believe that WPP management should be given the benefit of any doubt to proceed with this acquisition," they said in a note to clients.

The Swiss broker calculates that the group could finance the deal entirely through debt and argued that it would not necessarily lead to a downgrade for the company's credit rating.

Regus gained 3p to 60p after Thursday's 8 per cent drop in the stock. This weakness is believed to have been due to a forced seller who was told to abandon his bull position, held in the form of a contract for difference, by his broker. This is becoming an increasingly common phenomenon.

At the start of the week dealers reported a similar scenario at Tadpole Technology and it is due to the increasing use of contracts for difference, which are highly leveraged financial instruments. Vague bid speculation pushed SSL International 11.5p higher to 297.75p. Autonomy fell 6.5p to 173p as both UBS and JP Morgan downgraded the stock after Thursday's disappointing results from the group. UBS cut its rating to "reduce" from "buy" and slashed its earnings estimates by 37 per cent for the current year. JP Morgan moved back its recommendation to "neutral" from "overweight".

Lower down the pecking order, Knowledge Technology Solutions put on 0.38p to 5.5p after Marc Pinter-Krainer, its chief executive, bought 100,000 shares at 5.35p. He now controls 13.8 per cent of the company. There was also director share-buying at RM, 1p better at 122.5p. Rob Sirs, an executive, picked up 12,500 shares at 125p. Clarity Commerce rose 3p to 69.5p after the software solutions group unveiled a 95 per cent jump in full-year pre-tax profits to £740,000. Analysts predict profits will rise to £1.1m by the end of the current year. Clarity now boasts a number of high profile clients for its software including Mothercare, UCI and Odeon.

And finally, investors should keep and eye out for Zambezi Resources next week. The company is expected to float on Monday. WH Ireland is believed to have raised £2.5m for the copper and gold explorer via a placing at 12p and the stock is widely expected to register a healthy premium to this on its first day of dealings.

The placing by WH Ireland is said to have been three times oversubscribed.

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