Market Report: Rumours say Weston mulling bid for Sainsbury's

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Sainsbury's was once again on takeover alert yesterday as rumours of a bid for the supermarkets group circled the City and drove its shares 3.75p higher to 291p. The latest story doing the rounds of dealing rooms suggests that the Canadian billionaire Galen Weston is weighing a move on the troubled retailer.

Sainsbury's was once again on takeover alert yesterday as rumours of a bid for the supermarkets group circled the City and drove its shares 3.75p higher to 291p. The latest story doing the rounds of dealing rooms suggests that the Canadian billionaire Galen Weston is weighing a move on the troubled retailer.

If you believe yesterday's gossip, he is willing to pay up to 350p a share for the company and will employ serial director Allan Leighton to help turn it around. Sainsbury's is certainly conscious that it is vulnerable to takeover. Back in November it appointed Morgan Stanley to advise management in the event an offer is tabled.

The Weston family already own the department store Selfridges and Mr Leighton, who in the past has been linked with private equity bids for Sainsbury's, is a director of a number of Weston businesses. Analysts believe that the Canadian billionaire will have little trouble financing a takeover of Britain's third-biggest supermarket group.

A note from Investec Securities last week argued that Sainsbury's assets are worth 365p a share and was adamant that if the present management team failed to revive the retailer's performance, a predator most probably will.

Elsewhere in the sector, Somerfield retreated 2.5p to 187.5p despite rumours that Baugur would soon return with an offer of 210p a share for the company. The original 190p bid from the Icelanders was rejected by Somerfield directors last week.

The wider market was in retreat after a lacklustre start to trading in New York. The FTSE 100 index fell 7.7 points to 4,992.8 while the FTSE 250 gave up 20 points to 7,260.8. Man Group rose 51p to 1,405p after announcing an increase in the value of its flagship AHL fund.

MmO 2, 1.25p higher at 124.5p, was buoyed by Investec Securities, which predicted that the mobile phone group's forthcoming trading statement will impress investors. The broker believes it is mmO 2's German operations that will be the driving forced behind growth at the company over the coming year.

Europe's biggest country certainly seems to present a good opportunity for existing mobile operators. It has among the lowest levels of mobile phone use on the Continent and if it is to reach levels presently seen in the UK an additional 13 to 14 million customers will have to be won over by market players. That will mean extra sales and profits for the likes of mmO 2.

Colt Telecom gave up 1.5p to 53.75p after ING Financial cut its rating on the alternative telecom carrier to "hold" from "buy". Although the broker is happy with the recent appointment of Jean-Yves Charlier as Colt's new chief executive, it argued that he is unlikely to start having much of an effect on the business until 2006. LA Fitness slumped 14.5p to 219p on talk that the auction for the gyms operator is going far from well. Reports suggest that the favourite to buy the company, the private equity firm Electra Partners, has given up its interest in the company. Meanwhile, analysts note that LA Fitness is facing increasing competition and significant energy and labour cost pressures across its UK estate.

Recently, the LivingWell chain, owned by Hilton, reported a 15 per cent drop in profits for 2004 and complained about the difficult market conditions it was facing. Meanwhile, David Lloyd Leisure, controlled by Whitbread, yesterday revealed that its sales growth rate had dropped to 3.8 per cent from 5.2 per cent. Given such developments, Altium Securities urged its clients to reduce their exposure to LA Fitness stock and warned: "The apparent deterioration of trading within the sector is likely to mean that the group's shares fall to below pre-bid levels of 200p."

EuropAsia Education rose 0.12p to 1.72p as investors got excited by the group's recent investment into China. As part of the deal, EuropAsia will help provide English language courses at a major regional university. Castings added 9p to 204.5p as brokers highlighted the engineer as a likely beneficiary from the current retreat in raw materials prices. Ovoca Resources gained 0.27p to 9.12p on rumours it will today announce a significant gold acquisition and the appointment of two new directors.

Finally, word has it that BioProjects, off 0.13p to 3.12p, is poised to diversify away from the world of biotechnology. The investment company, chaired by Jim Slater, was set up in 2002 to invest in early stage biotech ventures but is now believed to be planning a move into oil exploration. According to a well informed source, the group is presently in negotiations aimed at the purchase of a company in China.

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