Market Report: Whitbread rises on fresh talk of a break-up bid

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Rumours that a number of private-equity firms are circling Whitbread sent shares in the leisure giant soaring 9 per cent yesterday, or 75p higher to 925p.

Rumours that a number of private-equity firms are circling Whitbread sent shares in the leisure giant soaring 9 per cent yesterday, or 75p higher to 925p.

According to the speculation, the likes of Apax, CVC, and a US buyout firm are running the slide rule over the company with a view to launching a breaking bid.

The suggestions that Whitbread should be broken up is not new. The company controls the David Lloyd health club chain, Premier Travel Inn hotels, Costa Coffee and a portfolio of pubs and restaurants and it has never been clear why this diverse collection of assets should be housed under one roof.

Meanwhile, anyone looking to break-up Whitbread should have little trouble finding buyers for its various units. Duke Street Capital, which owns a chain of health clubs, would certainly be interested in David Lloyd. As would Permira, which controls Holmes Place and Travelodge Hotels. Cash-rich private equity houses are also likely to be keen to take on Whitbread's various and restaurants. As for the group's pubs business, it would make a great acquisition for the likes of Green King.

Key to any takeover of Whitbread being successful is the issue of price. A note from Goldman Sachs this week suggested that the leisure conglomerate is worth 1,142p a share - and possibly more if it were broken up.

But not all analysts are convinced that private-equity players can make the numbers stack up at a takeout price of more than 1,200p a share. Sceptics also noted that any buyer of the company faces the possibility that Whitbread will soon be up against some pretty tough economic conditions as the UK economy slows.

Meanwhile, strong gains on Wall Street helped the FTSE 100 close within a whisker of the psychologically important 5,000 level, up 23 points to 4,994. The FTSE 250 improved 73 points to 7,092.

Banks had a bad session after a warning from Barclays, down 22p to 528p, about rising levels of consumer bad debt in the UK. Royal Bank of Scotland lost 53p to 1,606p, Northern Rock retreated 18.5p to 745p, HBOS dropped 19.5p to 806.5p and Lloyds TSB gave up 8p to 458p. Analysts reckon Egg, off 0.75p to 97.75p, is among the most exposed to this trend.

J Sainsbury put on 1.25p to 284.25p as analysts came away from a meeting with Justin King, the supermarket group's chief executive, impressed by how his reform package is proceeding. "Our meeting with Justin King reinforced the view that his initial progress is encouraging and the problems unearthed since his arrival are fixable," analysts at Dresdner Kleinwort Wasserstein concluded. They believe Sainsbury's is slowly winning back lost customers.

Deutsche Bank urged its clients to sell into any strength in ScottishPower's stock prices. Investors had the opportunity to do so yesterday as the power provider ticked 2.75p higher to 469.75p. Deutsche worries that once the sale of PacifiCorp is complete, the rump of ScottishPower will looklike an expensive company when compared with its peers. Hence, the broker set a 400p price target on its shares.

Cattles added 3p to 309p amid suggestions the door-step lender could soon receive a bid from a big bank. HSBC has in the past been talked of as a possible buyer of the group. HSBC recently bought Household in the US, in many ways a similar type of business to Cattles.

Elsewhere, dealers reported rumours that Icelandair is looking to increase it stake in easyJet, off 1p to 238.5p. At the latest count, Icelandair's stake in the budget airline stood at 10.1 per cent.

Lower down the pecking order, White Nile added 1p to 126p after Andrew Groves, an executive at the now south Sudan-focused oil explorer, bought 40,000 shares at 120p. Mr Groves now holds more than 15 million White Nile shares. Xaar, steady at 214p, saw Steve Temple, the technical director at the printing specialist, announce the sale of 50,000 shares at 213p each.

Zenith Hygiene put on 8.5p to 146p as gossips said the company was close to securing a £6m contract from a large food services company. Majestic Wine, 7p better at 238.5p, was bolstered by talk the wine retailer has enjoyed strong trading over the past quarter.

Inspace, the social housing maintenance specialist, enjoyed a strong debut on AIM. Listing at 108p, the group raised £30m through the broker Seymour Pierce and closed at a healthy premium of 117.5p. This gives the company a market value of £77.5m. Punch Graphix became AIM's second-biggest float so far this year. After a £50m fund raising by Altium Capital at 98p the stock closed at 110.5p, ascribing a stock-market value of more than £110m to the group.

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