Market Report: Talk of Quadrant tie-up adds shine to ML Labs

ML Laboratories was said to be putting the finishing touches last night to the acquisition of Quadrant Technologies, a private inhaler therapies company that will double the size of the biotech. Market professionals believe it is likely the tie-up will be announced by ML today, along with interim results, and expect the deal to make the biotech profitable.

ML's long-suffering shareholders are desperate for a renaissance at the group. At the height of its powers, in 2000, the biotech was worth more than £1bn but since then investors have suffered a slow decline in the company's fortunes. ML's board, led by Stuart Sim, was removed this year after a shareholder revolt led by David Kirch, the Jersey-based property millionaire. The appointment of new management, led by Kieran Murphy and Ian Kent, soon followed.

It is they who have brokered ML's acquisition, which will be an all-share deal accompanied by a relatively small fund raising at 19p. ML shares closed 0.5p higher at 20.75p. As for Quadrant Technologies, it is the product of a management buyout from Elan Corp. Those who backed the deal five years ago are likely to sell straightaway a part of the shares they are given in ML as part of the merger in what is called a "vendor placing". This will also be done at about 19p.

Analysts believe Quadrant should fit well with ML's Innovata Biomed division. It too specialises in developing inhaler therapies. Innovata is 81 per cent-owned by ML but it is likely the biotech will soon buy out the remaining minority shareholders and take full control of the division.

Elsewhere, Matalan, down 6.75p to 172.5p, came under heavy selling pressure amid fears the discount retailer may be about to issue another profits warning. Matalan's most recent warning came at the start of May and things are unlikely to have improved much since then given the downturn on the high street. In an attempt to offset falling sales, the retailer is reported to be working on reducing its cost base through job cuts.

Also weighing on Matalan was UBS which set a 160p price target on the stock yesterday and urged its clients to reduce their exposure to the company. Matalan was not the only retailer to lose ground. Woolworths dropped 1.25p to 36.5p, Peacock Group retreated 2.5p to 258p and French Connection gave up 1p to 270p.

Meanwhile, the FTSE 100 dropped 27 points to 5,019.5 after a weak start to trading on Wall Street. Gossips reckon HSBC, down 6.5p to 878p, may be tempted to buy ABN Amro now that the Dutch bank looks likely to lose its battle to take over Italy's Banca Antonveneta. ABN has been head-to-head with Banca Popolare di Lodi in the race to win Antonveneta, and Banca Popolare raised its offer yesterday to a level ABN will struggle to beat. Should that prove to be the case, the Dutch bank is likely to look vulnerable to a takeover.

In the telecoms sector, Cable & Wireless jumped 6p to 148p on rumours of a bid for the alternative carrier. BT dropped 4p to 218.5p amid suggestions the fixed-line operator may be about to bolster its IT division with an acquisition. According to dealing-room gossip, BT is eyeing the Belgian IT services player Telindus.

BAT improved 7p to 1,099p after JP Morgan raised its price target on the tobacco giant to 1,300p from 1,090p. The broker believes the improving US litigation environment should help BAT boost its balance sheet, which in turn will free-up cash for it to engage in a major share buy-back programme. JP Morgan calculates that BAT has the potential to buy back up to 37 per cent of its share capital by 2008. It also raised the possibility that BAT may look to merging with Japan Tobacco, a deal that would make it the world's No 1 tobacco company.

BOC dropped 2p to 1,058p as once again rumours suggested that the gases giant is looking to merge with its German rival Linde.

Investec Securities warned investors that the detergents maker McBride, unchanged at 153.5p, is likely to be having a tough time of it given the deteriorating market conditions it faces. McBride sells mostly into continental Europe where retailers are facing price deflation. Meanwhile, it is also up against rising costs due to the high value of crude oil, a major raw material for the company. McBride is expected to issue a trading statement before the end of the month.

Avesco rose 5p to 101.5p in the run-up to next week's results from the group. Gossips reckon they will not disappoint. Wyndeham Press, 1p better to 132.5p, is due to report annual results today and brokers expect the specialist publisher to deliver a £2.6m rise in pre-tax profits to £7.2m. Investors should not be surprised to see Wyndeham top this forecast.

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