Market Report: Sainsbury's rises on talk of private equity bid

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J Sainsbury found plenty of support before next week's numbers after Merrill Lynch said it expects the supermarket group to report a 75 per cent increase in underlying profit. The shares climbed 12.25p to close at 414p.

However, if the word in the market is to be believed traders were not just tucking into Sainsbury's on the back of Merrill's note. The talk is that a private equity group is weighing up a 460p-per-share bid for the company that would value the business at about £10.3bn, including more than £2.4bn of debt. Traders said that changes to property law mean that a bidder could hive off its freehold property portfolio into a Real Estate Investment Trust without making much more than a tiny dent in the company's retail profits.

Associated British Foods was again high up on the blue-chip leaderboard, rocketing another 28.5p to 884p by the close, as ABN Amro became the latest City name to wax lyrical over the company. The Dutch investment bank raised its recommendation on the shares to "buy" from "hold" and upped its target price to 945p. London blue chips were subdued after the expected quarter-point rise in UK interest rates and another sell-off in the pharmaceutical sector. The FTSE 100 closed 7.5 points worse at 6321.5. Strong results from brewer SABMiller which sent its shares 36p firmer to 1,093p, helping Scottish & Newcastle to add a penny to 549p, were not enough to send London shares into positive territory.

Most of the trading action was in the mid caps. Investors bought into oil industry services provider Abbot Group as rumours circulated the market that a US peer is poised to make a bid for the company. Global demand for drilling services and engineering expertise has driven the stock close to its all-time high. The company has denied receiving any bid approaches, but that did not stop the shares rallying 23p to 335p by the close.

The six-month takeover lay-off for Vincent Tchenguiz and Mitchells & Butlers ended on Wednesday. It looks like traders are betting that the property tycoon will make another offer for the pub and bar management group sooner rather than later. Business was brisk, with 13.5 million shares changing hands, but it looks like Mr Tchenguiz will have to dig much deeper than the 550p he offered last time as the shares climbed to yet another all-time high closing high of 625p, 17.5p better on the day.

It seems like Invensys hasn't gained 40p in a day since the days of Methuselah, and many shareholders must have despaired of ever seeing a day like it again. However, the company reported results substantially better than the City had been forecasting and the stock surged 40.25p to 278.25p as brokers, including Morgan Stanley and Evolution Securities, rushed to upgrade forecasts and target prices. But there are still some traders who remain unconvinced about the turnaround. Fellow engineering group Charter was also in demand, 4.5p firmer at 897.5p, as Panmure Gordon reiterated its buy advice with a 1,010p target price.

More grim trading news from CSR on Wednesday has sent investors and brokers running for cover. The company has gone from being the star performer in the mid-cap market to a basket case in little over five months, losing 60 per cent of its value. Deutsche Bank, ABN Amro and Credit Suisse all slashed their target prices for the shares yesterday as the stock closed another 32p worse at 613p.

In the small caps, it was a good day for investors in energy and commodity-related stocks. After a couple of poor weeks Empyrean Energy, which gives the market a weekly drilling update, surged on news that exploratory drilling at its Sugarloaf prospect in Texas is showing good indications of a major gas find. The shares rallied 10.5p to close at 60p.

Chilled foods producer Uniq pleased investors with the €370m sale of St Hubert, its French and Italian spreads business, to Dairy Crest. The company generates 61 per cent of its revenues from Europe, but yesterday's sale, worth about £248m, is approximately 24 per cent higher than Uniq's total market capitalisation. The news overshadowed in-line first-half results from Dairy Crest, which raised £6.25m of capital via a placing of new shares with institutional investors. Uniq added 15.5p to 192.5p while Dairy Crest fell 40p to 591p.

Stockbroking and investment banking group Shore Capital hit a new high for the year after confirming that Dawnay Shore Hotels, a chain in which it is a major shareholder, is up for sale. Shares in Shore Capital closed 7.25p better at 70p.