Market Report: Talk of private equity bid lifts InterContinental

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Strong results from Host Hotels, formerly known as Marriott Group, on Thursday gave a big boost to shareholders of InterContinental Hotels. The rumour yesterday was that a consortium of private equity buyers may be about to give the shares an even bigger boost, with a bid valuing the shares at 1,250p each.

Most of the biggest private equity firms have substantial real estate funds, and The Blackstone Group, Starwood Capital, which recently bought the hotel assets of French luxury brands group Taittinger, and The Carlyle Group were the names on most traders' lips yesterday.

The hotel industry has rebounded remarkably since the post 9/11 global travel downturn, and the number of players in the real estate market has mushroomed in the last three years. Some traders put the bid rumours down to it being a quiet Friday before a bank holiday weekend, and with InterContinental shares having been 24p better at 990p, the shares succumbed to a bout of profit taking, closing a penny firmer at 967p.

A busy day for banking investors included the Alliance & Leicester bid from Crédit Agricole story, which is becoming something of a staple of Friday trading. Influential finance and insurance investment banking boutique Fox-Pitt, Kelton published a bullish note on A&L. It said: "The type of intense bid speculation that surrounded A&L a few weeks ago would not have occurred without there being some sort of justification. There is no smoke without fire." A&L shares were well bid all day, closing the session 11p better at 1,123p.

Standard Chartered was also in focus as speculation mounted that Temasek, the Singaporean government-run investment fund, is about to launch a full-scale offer for the company. It already owns more than 11 per cent of the shares and is Standard's largest single shareholder. Traders also said that if an offer comes it may tempt other banks into the bidding for one of the most successful banks operating in South-east Asia. One trader said: "HSBC would surely be interested in acquiring Standard - not only would it strengthen their position in the region, it would also create a substantial amount of cost synergies." The take over chatter was sparked by a large trade going through after the market shut on Thursday, with the stock closing 41p better at 1,456p having traded as high as 1,517p earlier in the session. HSBC firmed 1.5p to 947.5p.

Elsewhere in the FTSE 100 follow-through selling of mining and oil issues saw the index lose more. The session finished with the FTSE 100 36.9 lower at 6023.1 ahead of next week's shortened business week.

Shell, due to report first quarter numbers next week, remained unloved and fell another 32p to 1,961p, as the price of oil dipped below $71 per barrel.

Anyone brave enough to be still holding shares in iSoft had another bumpy ride yesterday as the company warned on profits for the second time this year. The stock has seen exceptional volatility in recent weeks, with one story after another either knocking the shares back or sending them rocketing. Yesterday's session saw the shares temporarily suspended on technical issues as sellers scrambled to close positions, with the shares ending 23.25p lower at 117.5p.

Troubled retailer Matalan is due to report full year figures on Wednesday next week. The stock attracted some speculative support, climbing 6.25p to 199p as broker Goldman Sachs upgraded it. Volume was huge, with more than 36 million shares changing hands. The chairman John Hargreaves has been rumoured to have been considering a bid to take the company private for some time, but many retail investors think that the discount fashion chain is still some way from turning around performance.

Consolidation in the house building sector looks a certainty, with Crest Nicholson still the hot favourite. The shares were the best performers in the FTSE 250 yesterday, adding another 22.5p to close at 558p. Traders believe an offer worth 650p per share is on its way, probably from Bovis Homes, rumoured to be talking to investor Gerald Ronson about his 23.3 per cent stake in Crest. Bovis shares dropped 7p to close at 897.5p.

Finally, Mediterranean Oil & Gas, which earlier this week was thought to have been a target for Italian national oil group ENI, surged another 41p to close at 230p. The shares added more than 50 per cent over the course of the week's trading and were given another boost yesterday as the Italian government gave the company approval to start tests on the TeaGas Field in the northern Adriatic. ENI is partnering MOG in the development and some traders remain convinced that if tests are successful ENI will make a full bid for its partner.