Market Report: Vedanta surges on talk of Chinese bid interest

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The Independent Online

After a relative lull in activity, the mining sector was buzzing yesterday, with more bid talk doing the rounds on top of speculation as to what BHP Billiton may be prepared to pay for Rio Tinto.

This time, Vedanta Resources, the Indian copper mining group, was the subject of new rumours with traders saying that a Chinese group is mulling a bid for the company at up to 2,700p per share. That deal would make sense – Vedanta's operations are close to China and, given its demand for copper, controlling some supply would seem the next logical step. However, a bid would have to win the approval of Anil Agarwal, who owns 53 per cent of the stock. A bid at 2,700p would value his stake at more than £4bn – enough, presumably, to temp him into selling out. The talk sent Vedanta shares 220p better at 2,120p, a new high, in early deals before the lost some steam later in the session to close up 136p at 2,036p.

Elsewhere, Lehman Brothers told clients that BHP could be prepared to pay as much as 6,300p per share for Rio Tinto, significantly higher than the current price, and that the figure would have to go as high as 7,100p before damaging shareholder value. Rio Tinto shares topped the leaders, soaring 390p to 5,315p, while BHP closed 79p better at 1,568p.

Wolseley was in demand after a shocking run that has seen the plumbing and building supplies group more than halve in value since February. House broker Citigroup slashed its earnings forecasts for 2008 by 30 per cent and for 2009 by 35 per cent and cut its price target by 31 per cent to 750p. But it retained its "buy" rating on the stock, helping the shares climb 23.5p to 668p.

The food retail sector was in focus following some bullish numbers from the privately owned Waitrose, the food arm of the John Lewis Partnership. Its numbers came on the back of Morrison Supermarkets' excellent third-quarter results on Thursday – but the implication was not good for everyone. Tesco, the UK's largest food seller, fell on concerns that its rivals have eaten into its leading position before closing just 0.5p better at 473p. Meanwhile Morrisons closed another 4p firmer at 297.5p and J Sainsbury closed 9p better at 422.25p.

London shares were able to maintain the momentum from Thursday's positive session, supported by bid talk and a decent start on Wall Street. By the close, the FTSE 100 was 106.8 better at 6,262.1.

Imperial Energy bounced following Thursday's confirmation that it has spurned a proposed investment from the banking arm of the Russian gas giant Gazprom. The company, which has the largest proven and estimated reserves of any mid-cap exploration and production group, added 73p to close at 1,154p.

Elsewhere in the second-line oil stocks, punters booked some profits ahead of the weekend as the oil price fell, sending Premier Oil 12p lower to 1,174p and Venture Production down 12p to 772p.

Proving that there is life in the private equity world yet, shares in Intermediate Capital soared 190p to 1,650p after posting a sparkling set of numbers. Brokers waxed lyrical about the lender, which is enjoying unprecedented demand thanks to the credit crunch. Merrill Lynch reiterated its 1,950p price target, telling investors that the shares remain undervalued on "all measures".

Investors in Johnson Service Group, the embattled dry cleaner, might have had their hopes up of a rescue bid earlier in the week, but those were dashed as profit-takers moved in aggressively. Short-term traders had pushed the stock up to 90p, but there seems to be no sign of a bid so far and they turned sellers, sending the stock 23p worse to 63p.

Oxonica continued where it had left off on Thursday following a placing at 21p per share, raising £4.2m. Shares in the nanoscience group have been a poor long-term performer, but, with a handful of buyers around and not much stock, the shares rallied another 10p to 35p.

It does not look like the FSA will be investigating trading at Vega Group in the run-up to yesterday's announcement that the company is in preliminary takeover talks – shares in the aerospace and defence technology group had fallen 17.5 per cent since the start of May and the announcement came out of the blue. Although the talks are at an early stage, the shares rallied 16.5p to close at 216p.

Finally, shares in GCap Media were sharply lower, down 22p at 132.5p, following the resignation of chief executive Ralph Bernard after 25 years of leading the company. However, telling investors that "the time is right" for him to step down may sound rather hollow – the shares have had a terrible run in the past four years against a much stronger market, losing 75 per cent of their value. One said: "The time was right a long time ago."

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