Market Report: Smiths Group is sweet on Honeywell bid talk

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The Independent Online

Smiths Group is one of the few stocks outside the commodity sectors to have clawed its way back to the dizzy heights of the top of the market, and is now trading at levels not seen since December 1999, when the market was nudging 7,000 and brokers thought that Time Warner merging with AOL was a good idea.

Although Smiths finished yesterday's session unchanged at 1,034.5p, the talk around the market was that the US aerospace and materials group Honeywell is considering a bid for the global engineering group, with one trader saying the bidding would have to start "at a minimum of 1,250p". More than 8 million Smiths Group shares were traded, more than double the daily average.

Honeywell, with a market capitalisation of $35bn (£20bn), is big enough to swallow Smiths, currently worth about £6.7bn. Traders speculated that Honeywell would sell the medical division of Smiths, responsible for 16 per cent of group profits. One said: "There would be no shortage of buyers for the medical business, and with 60 per cent of Smiths' profits coming from the US there would also be plenty of synergies and cost-cutting opportunities. Smiths definitely looks like a good fit for Honeywell."

Another corporate activity favourite, the brewer Scottish & Newcastle, fell out of favour with traders as Nils Andersen, the chief executive of its Danish rival Carlsberg, said his company has no plans to merge with S&N. The shares declined 5.5p to close at 519p but some traders remain hopeful that S&N is still a target. One said: "He said that Carlsberg won't merge with S&N, but that doesn't mean it won't bid for it. The Russian business is booming and other brewers, maybe Anheuser Busch or even SABMiller, could bid for S&N."

In the broader market, weakness in oils and mining issues dragged the FTSE 100 12.1 lower to close at 6,086.6. BP's uninspiring first-quarter performance led to a bout of profit-taking, with the shares closing 10p worse at 701.5p. In the miners, Xstrata was 36p cheaper at 2,092p, while Anglo American lost 37p to close at 2,424p.

Elsewhere in the FTSE 100, broadcasters were in focus with talk that the buyout giant Kohlberg Kravis Roberts is poised to bid for ITV, less than a month after another private-equity consortium, led by Apax Partners and including Goldman Sachs, abandoned a bid for the group. BSkyB was also well bid, with traders focusing on the rights to football's Premier League. Final bids for broadcast rights are due tomorrow, with BSkyB losing its monopoly on live football rights. ITV edged 1.5p firmer to 116p, while BSkyB added 12p to close at 527p, among the best performers in the FTSE 100.

Yet again there was corporate activity chat in the housebuilding sector, with Redrow thought to be on the verge of receiving a 700p-per-share bid. Most of the talk in the sector has surrounded Redrow and Bovis Homes, with traders saying the two groups made the best fit in the sector. Redrow nudged half a penny firmer to 535.5p; Bovis closed at 905p, a rise of 11p.

Excitement over the drug pipeline at Phytopharm, the plant-based drug developer, remains high after a string of positive news from the company. Phytopica, a treatment for canine skin disorders, was launched yesterday but traders are far more excited about the possibilities for the company's appetite suppressant, currently in developmental stages. Some traders believe it has the potential to return many times the current share price in the long term. The shares added another 6.5p to close at 55.75p.

Sticking with the African theme, there will be some nerves among holders of Central African Gold. The shares were suspended yesterday afternoon after a frantic session in which the price rocketed 6.5p to 23.5p with 7.2 million shares traded. The company said in a regulatory announcement that it is in discussions that may lead to a reverse takeover. The news comes only five days after the company raised £9m through a placing of 100 million new shares.

Good results and a confident trading statement gave the hedge fund operator Integrated Asset Management a boost, sending the shares 6p better to 60.5p. Long-term performance has been disappointing for Integrated, one of the UK's longest quoted hedge fund managers, but the chairman John Booth said the company has exceeded its targets for the year and has a confident outlook for the rest of 2006.

Another smaller company reporting progress well ahead of market expectations was the traffic data provider ITIS Holdings. It said US interest in its Cellular Floating Vehicle Data remains buoyant, as the shares climbed 7.25p to 57.25p.

Finally, traders are looking out for Oxford Catalysts, due to start trading on AIM today after a placing at 174p by the broker KBC Peel Hunt.