Market Report: Smiths surges as 'poison-pill' deal dissolves

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The Independent Online

In the wake of the collapse of Smiths Group's joint venture with General Electric, tongues were wagging about the future of the UK group.

The two companies announced yesterday that they had abandoned the joint venture, in a move that could lead to the break-up of Smiths, according to UBS.

The Swiss broker said the tie-up had acted as a "poison pill" to potential bidders for Smiths' detection unit – which makes chemical, trace and X-Ray equipment – and yesterday's news could spark a bid scramble from rivals. Smiths rose 31.5p to 1030p.

The market steamed out of the blocks yesterday, led up by the blue chips. The sharp rises were sparked by overnight news that the Federal Reserve had cut interest rates by 50 basis points, in a bid to stave off a slowdown in the economy. The FTSE 100 broke through the 6,400 resistance level, which it had failed to breach twice in the past six weeks, and closed up 176.7 points at 6,460. The rally was boosted further by the Bank of England's announcement at 11am that banks can borrow for three months using mortgages as collateral. One trader predicted huge profit-taking today after the gains, while another said there was a short squeeze.

Miners enjoyed a bump as metal prices rose, with BHP Billiton top in the early morning after huge trades in Australia. The day's best performer was Anglo American, which closed up 8.27 per cent to 3129p.

Another riser in the morning was Standard Life after admitting it was considering wading into the Resolution takeover battle. The stock was up 6.92per cent, although weakened to close up 2.5p at 277p.

Property companies rallied, as did the financial stocks as fears eased. The goodwill did not extend to Northern Rock, however, which was the worst performer on the top tier. The beleaguered Newcastle lender slumped 16 per cent to 257p after word swept the trading floors that the takeover bids came in under the expected £1bn price tag. There was speculation that Lloyds TSB would offer 200p per share, while HBoS was considering lodging 100p per share. One trader voiced his surprise over the depth of the fall, saying there had been one large long position taken out yesterday.

Sage Group weakened in the morning as the Indian outsourcing giant Infosys Technologies denied interest in a takeover bid, but closed the day flat.

In the second tier, although not for much longer, Carphone Warehouse was knocked off the back of profit-taking. The stock had soared after US partner Bestbuy Group revealed it has a 3 per cent stake, with the inevitable takeover bid rumours that followed. Investors keen to lock in profits sent the stock down 1.42 per cent to 365.5p.

At the other end, Michael Page soared after a fortnight of falls. The recruiter has shed 16 per cent since the beginning of the month, but rallied to close 8.97 per cent higher at 419p. The IT group Misys had a strong day as it reported that first-quarter revenues were up 6 per cent to £104m, principally driven by the banking division. The group bounced 8.43 per cent to 225p after the statement, which added it was on track in slashing costs.

On the growth market, it was another shocking day for the hedge fund Absolute Capital Management, whose shares fell a further 48 per cent. The slump – 85 per cent since the close on Monday – was triggered by the departure of its founder and the subsequent recriminations. The group yesterday said it was forced to suspend some of its funds after receiving more than $100m in redemption notices.

Small-cap traders said that despite a small rally in the morning the growth stocks came back following uncertainty. "The sentiment from above hasn't filtered through. It looks like people will want to sell into it," he added.

Elsewhere among the fallers, AIM stocks were smashed by collapsed takeovers. Cardinal Resources was the second worst performer of the day, shedding a third of its value, to end at 7.25p. This came after the Ukraine-focused oil and gas exploration group admitted that talks "with multiple parties" would not end in an approach.

Turbulence in the debt market seems to have scuppered Photo Me International's break up. The group has been looking to sell its vending division after a strategic review, but it said the recent indicative offers "had not translated into firm offers at an acceptable level". The shares weakened by 4.5p to 59p, with traders expecting further falls. Finally Abcam suffered after talks with a small number of potential offerors were terminated. The antibody supplier fell 8.96 per cent to 305p.

Top of AIM was Central African Mining after its licences in the Democratic Republic of Congo were deemed valid. These had been revoked at the end of August, but a court ruling backed Camec yesterday, sending it up 26.53 per cent to 31p.