Market Report: WH Smith surges on fresh round of bid rumours

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The Independent Online

WH Smith was yesterday once again flavour of the day among punters as fresh rumours of a bid for the retailer did the rounds of the City. The stationery retailer jumped 17p to 411.75p on hopes of a private-equity offer for the company, although the stock closed below its high for the session of 416.75p.

Despite recent evidence of a sharp slowdown on the high street, Smiths has been a top performer during the past two months. Since October, its shares have soared by 25 per cent.

Analysts on the whole have dismissed talk of a bid, especially before Christmas, which is a key trading period for the sector. They point out that Smiths is now well above the 375p-a-share level offered last year by the private-equity house Permira. These negotiations failed because of the size of the group's pension-fund deficit and this situation is unlikely to have improved much.

Lehman Brothers has tipped Smiths, along with Marks & Spencer, 0.5p higher at 459.5p, to be among the few winners on the high street this Christmas. Elsewhere in the sector, Ted Baker rose 12p to 463p after securing a distribution deal which will make its brand available in 13 Asian and Middle Eastern countries.

The FTSE 100 index was little changed by the Chancellor's pre-Budget report, and finished the day 17 points lower at 5,510. Dealers were surprised to see Paragon end the day 15p higher at 628p, and Bradford & Bingley gain 2.75p to 382.25p after Gordon Brown scrapped plans to allow people to buy residential property through their pension plans. The original proposal would have meant that those who bought property in such a way would have avoided paying capital gains tax on any profit made from a sale and tax on any rent earned. Buy-to-let lenders such as Paragon and Bradford & Bingley had hoped to cash in on this. Dealers expect shares in the duo to lose ground today.

Meanwhile, BSkyB retreated 14p to 491p on concerns that the planned combination of NTL/ Telewest with Virgin Mobile to offer a "quadruple" play of mobile, fixed line, broadband and telephony will pose a major threat to the satellite broadcaster which just last month moved into the broadband market with the purchase of Easynet.

Johnston Press gave up 11p to 479p after Citigroup urged investors to exit the local newspaper owner. The US broker pointed out that last week's results from the rival newspaper proprietor Daily Mail & General Trust highlighted a deterioration in trading conditions, with all advertising categories experiencing a slowdown during the second half of the year.

Investec Securities urged investors to take profits from the 20 per cent jump in John Laing shares on Friday. The move was prompted by news that the company had received a preliminary takeover approach but the broker was sceptical yesterday that it would come to anything, especially given the stock's hefty valuation. Investec said: "This (valuation) and the uncertainty inherent with any preliminary bid talks lead us to believe that investors would be wise to dispose of some of their shares at the price being offered by the market."

Elsewhere in the sector, Mowlem rose 5.75p to 202.75p as City punters continued to bet on a formal offer emerging for the construction group. Carillion has said it wants to buy the group, but recent gossip suggests that a Spanish player is also considering an offer for Mowlem.

P&O lost 22p to 472p as hopes of a counter-bid for the ports operator from Temasek Holdings, the Singapore government investment agency, faded. Although Temasek said it had lifted its stake in P&O from 3.2 per cent to 4.1, many had hoped the group would quickly build up a substantial holding and then trump the existing 443p-a-share offer from Dubai Ports World (DPW).

The latest view from the City suggests that Temasek is unlikely to bid for the whole of P&O but merely take a shareholding that will allow it to negotiate a deal with DPW to purchase some of P&O's assets. The Singapore holding company is the world's second-biggest ports operator with an estimated market share of 10 per cent.

Minorplanet ticked 1.5p higher to 46.5p after the vehicle tracking group said it had broken even in October. This compares with losses of about £500,000 for the same month last year. Carrwood was suspended at 3p as the cash shell confirmed a report in the Small Talk column of yesterday's The Independent that it is in talks aimed at the reverse takeover of Clear Debt, an insolvency specialist.

Finally, Amiad Filtration Systems had a strong debut on AIM having raised £6.5m through the placing of new shares at 129p. The group, which makes water-filtration systems for utilities, saw its stock close at 136p.

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