Market Report: Whitbread climbs on renewed bid chatter

For a second day in a row, takeover rumours sent investors rushing to get their hands on Whitbread stock. The difference yesterday was that the speculation was supported by comments from Numis Securities, and this gave shares in the leisure conglomerate an extra boost.

Urging investors to buy into Whitbread, Numis said: "It is not unusual for takeover speculation to surround Whitbread ... but this time they do not seem to be going away." Since the end of May, various stories about the group's future have circled City dealing rooms. The billionaire Reuben brothers, the private-equity firm Cinven and the Swiss bank UBS have been named as possible suitors.

Meanwhile, the recent sales of Whitbread's Marriott hotels and the reduction in its pension-fund deficit has removed two of its poison pills, enhancing the company's appeal to predators. To stave off a takeover, Numis suggests that Alan Parker, the chief executive, needs to announce a further restructuring at the group's interim results on 25 October. The broker believes there are numerous options open to him, but suggested that a sale or a significant restructuring of a division is the minimum required.

Either way, Numis, which has a 1,200p-a-share valuation on Whitbread, sees only upside for investors. In the broker's opinion, the value behind the group will be unlocked either by its present management or by a break-up bid. Shares in the leisure conglomerate finished 20.5p higher at 996.5p.

The wider FTSE 100 dropped 66.6to close at 5,427.8 as a wave of profit taking hit blue chips. Dealers said comments from a US Federal Reserve official, which led to worry about further interest rate rises across the Atlantic, had prompted the retreat.

The heavyweight mining and oil sector suffered most as Anglo American dropped 68p to 1,591p, Rio Tinto fell 93p to 2,214p, Cairn Energy lost 37p to 1,924p, Royal Dutch Shell slipped 29p to 1,890p and BG gave up 14.5p to 514.5p. Credit Suisse First Boston downgraded its earnings forecasts on BP, down 21p to 634.5p, and told its clients to sell the stock in the short term.

Harsh words from UBS sent PartyGaming 7.5p lower to 86.25p. The Swiss broker warned investors that despite its £200m marketing programme, which easily dwarfs that of its main rivals, the online-gaming group is losing market share. UBS has therefore slashed its 2006 and 2007 earnings forecasts by 17 per cent and 26 per cent respectively and has downgraded its rating on the stock to "neutral" from "buy". The broker said: "We believe PartyGaming is facing major issues with its affiliate (marketing) programme and intensifying competition."

Rentokil Initial fell 0.5p to 166p after brokers pointed out there are just seven working days left for Sir Gerry Robinson to table a formal takeover offer for the support-services group. The Takeover Panel set a 17 October deadline for any offer, while the former chief executive of Granada is believed to have had little contact with the Rentokil board of late.

Dresdner Kleinwort Wasserstein is sceptical that Sir Gerry will put together a bid in time, and told investors to switch into Compass, 3.25p better at 198.5p. The brokerhinted that the catering group might be his next target. Dresdner said: "Sir Gerry stated that he had other options if Rentokil did not work. Having once worked at Compass, maybe this one makes more sense than the Rentokil deal." Meanwhile, O2 put on 1.5p to 165.5p, despite comments from Germany's T-Mobile which seemed to rule out making a bid for the UK mobile phone operator. Rene Obermann, T-Mobile's chief executive, was reported as saying his company "was not in the game" for O2. But, Mr Obermann added that the UK market would benefit from consolidation.

Among smaller companies, EBT Mobile, the China-focused mobile phone retailer, jumped 3.75p to 36.5p after its management completed a roadshow of the City. Given yesterday's share price rise, EBT clearly impressed those investors it met.

Finally, European Goldfields rallied 12p to 103.5p as brokers cleared a large seller from the market. The seller is believed to have been Commerzbank Securities. The German bank's stake in the gold explorer is a legacy of the days when it had a London-based proprietary trading desk -a group of people who used to try to make money for the bank by trading stocks on its own account.

Commerzbank closed the desk this year and has been slowly unwinding its various positions since. Its 9 per cent stake in Goldfields is said to have been placed at between 92p and 95p, with US institutional investors thereby ending the German bank's investment in the company.