Market Report: Talk of Google swoop breathes life into Yell

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The Independent Online

It has been an interesting couple of weeks for the directories business Yell. Just a fortnight after the Competition Commission warned the company it may face continued price regulation over its dominance of the UK directories market, traders spent most of yesterday's session speculating that Google may use some of its paper to bid for Yell.

Takeover speculation has dominated the market over the past month. Google, however, has not had a good start to the year, with $13bn (£7bn) wiped off its value after reporting disappointing earnings growth in its third-quarter figures, announced on 1 February. Even so, the company could still afford to buy Yell without breaking sweat. Shares in Yell rose 20.25p yesterday to 570p, giving the company a capitalisation of a little more than £5bn including debt.

While some traders thought a deal would make sense to Google, citing its need to enter more traditional markets outside the internet space the company dominates, some thought the Competition Commission's warning would put Google off. One said: "Although Yell is likely to be able to persuade the Commission that further price regulations are unnecessary, the inquiry is likely to hang over the stock until a final decision is made. Google has its own problems to sort out, although looking at the amount of private-equity buyers involved in the directories business an offer cannot be ruled out."

Coming a close second in the rumour-of-the-day stakes was talk of a bid for the sports goods retailer JJB Sports, after weekend press reports linked the private equity house Permira with a bid for the business. Permira, also in hot pursuit of HMV Group, is thought to have recruited Peter Cowgill, the chairman of the rival sportswear retailer, JD, to lead the bid. Shares in JJB were the biggest gainers in the FTSE 250, sprinting 13.25p higher to 185p.

However, a source close to JD Sports said it was unlikely that Mr Cowgill would leave JD Sports immediately. "Peter is very much a hands-on chairman and has a close relationship with Pentland, the largest shareholder in JD Sports," the source said.

"He also has other business interests which he would have to abandon if he were to front a bid for JJB, a company which some people believe is a dead duck in the sports retail market anyway." Trading was thin in JD Sports, off 0.75p at 257p.

In the wider market, rumours of a bus explosion in north London led to a mid-afternoon blip, but the FTSE 100 of leading shares closed 29.4 points higher at 5,793.5. Deutsche Bank increased its year-end target for the index to 6,100 as the UK equity strategy analyst Charles de Boissezon noted that on 12 times 2007 forecasts the UK index is not expensive. He also warned the heavy weighting of resource stocks might drag the blue-chip index down later in the year.

The brewer Scottish & Newcastle could be in for a good week - it holds a 50 per cent stake in the Russian brewer BBH, due to report full-year figures tomorrow. Emerging markets, particularly those in the former Soviet Bloc, have shown tremendous growth for beer sales in the past few years, and analysts expect good numbers from BBH. Shares in S&N jumped 11.75p to 512p, a rise of 2.4 per cent.

The world's largest mining company, BHP Billiton, is due to report half-year figures tomorrow. Traders, who have felt nervous about the mining sector for a while now, continued to bank profits yesterday after a spectacular 12 months of growth. BHP Billiton closed 12.5p lower at 943.5p.

Among other miners, the AIM-listed Monterrico tumbled 62p to 322p, a dip of more than 16 per cent. The mining company said production is likely to be set back another year as it expands its Rio Blanco copper-molybdenum project in Peru and looks for a partner. Despite the setback the house broker Collins Stewart said the stock is "grossly oversold" at this level, and retained its "buy" recommendation.

Tristel, the infection-control products distributor, was among the leading gainers in the small-cap sector, after announcing maiden interim results since floating in June. Teather & Greenwood reiterated its "buy" stance on the company's shares. The broker was also upbeat about a co-branding partnership with Johnson Diversey, as Tristel shares rose 9p to 59p.

Shares in Deal Group Media rocketed 57.5 per cent higher after the online ad company confirmedit had received a number of takeover approaches. Its shares closed at5.12p, a gain of 1.87p. Although talks are at a preliminary stage, traders were confident enough to keep buying the stock throughout the session, and more than 24 million shares changed hands.

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