Dealers prepare for a summer takeover feeding frenzy

MARKET REPORT

The market's appetite for takeover bids was whetted yesterday, and many were predicting that the hors d'oeuvre in the form of Scottish Power's pounds 1.02bn aggressive offer for Manweb would be followed by several more courses before the summer was out.

The bid for Manweb was a welcome injection for a market that would probably have made a lacklustre start to the first week of the summer holdiays. The FT-SE 100 share index advanced 18.5 points to 3,431.6 and had chartists mapping out a swift course to 3,600.

A 24.2 point advance to 3,793.7 was recorded by the FT-SE 250 index, which has several utility stocks in its constituency ranks.

At the top of yesterday's menu of bid rumours was Smith & Nephew, the healthcare products company. Speculation that it would be the next dish to pass through the doors of the bid kitchen grew in intensity as the day wore on. Shares in Smith, viewed as being on top of the shopping list of the giant Johnson & Johnson, rose 7.5p to 203p - a high for the year.

A huge 13.57 million Smith shares went through the book. Trading in Smith's shares shifted up a couple of gears once Wall Street opened.

Smith is valued at more than pounds 2.2bn at the latest price. There was some talk yesterday that Johnson would offer more than 240p a share, valuing the constituent of the FT-SE 100 share index at more than pounds 2.6bn.

The consensus of opinion is that if Johnson is considering a strike then it would be best advised to make it sooner rather than later, before Smith is able to demonstrate that it has solved its problems, which culminated in the group losing pounds 5.5m before tax in 1994.

Analysts believe the group is on course to make more than pounds 186m this year, which translates to a price/earnings multiple on the shares of around 17.5.

Dealers were also predicting yesterday that a counter take-over bid was on the way for First National Finance Corporation, the consumer credit lender with a very troubled history. Bank of Scotland, which last week raised pounds 250m of fresh capital, was viewed as the firm favourite to mount a bid.

Shares in FNFC rose 4p to 114p, a premium to the recommended pounds 285m cash offer worth 110.5p a share made by Abbey National three weeks ago.

Speculation about a rival suitor surfaced soon after the opening bell amid some brisk trading for a stock that investors thought was dead in the water, destined to end up in the arms of Abbey.

One deal for 10,000 shares was struck at 115p, and several more blocks of similar size changed hands at 2-3p above Abbey's takeover offer. The biggest trade was for 50,000 at 111p.

David Cowham, chief executive of FNFC, said he was unaware of any rival bidder lurking in the wings.

Besides Bank of Scotland, the speculative list of potential suitors also includes Bristol & West Building Society, National Australia Bank, Lloyds Bank and Barclays.

Analysts were surprised by yesterday's events. Robert Mumby at BZW said a bidder that was prepared to pay more than 110.5p must be "pretty desperate" because Abbey's bid seemed to be a full price.

Scottish Power's move on Manweb lit up the electricity sector, apart from Northern because of a lot of the bid premium from an awaited fresh takeover strike by Trafalgar House is already in the price.

Shares in Manweb were easily the day's best performer, soaring 187p to 917p. Scottish Power eased 7p to 310p, but still makes the value of its cash and equity swap terms higher than the market price of Manweb's shares at 948p.

Other big movers in the sector included the next most favoured bid target, South Wales, which climbed 55p to 877p, East Midlands, which increased 56p to 751p, and Midlands, which finished 40p higher at 785p.

Many dealers believe that it is only a matter of time before the mighty Hanson swoops on one of the electricity stocks.

The music from the market's song of bids, glorious bids was even heard over the rapidly shrinking pitches for merchant banks and investment houses.

Schroders added another 20p to a year's high of pounds 13.63 amid a growing belief that it will soon become the sixth City institution to fall into foreign hands.

The list already numbers Barings, SG Warburg, Kleinwort Benson, Jupiter Tyndall, and last Friday's agreed takeover of Smith New Court by Merrill Lynch.

There was a separate rumour, however, that Schroders might at long last be dragged kicking and screaming into the 20th century with an enfranchisement of its two-tier voting share structure. The 44 million non-voting stock closed 10p up at pounds 10.40.

TAKING STOCK

rAn inauspicious start to the first week of the school holidays was made by shares in Airtours and First Choice, the UK's two largest tour operators. Concern is mounting that the operators will be left with many unsold holidays on their books. More than 1.5 million of this season's tours are still up for grabs, raising concerns about the effect on profit margins if holidays are off-loaded at bargain prices. Airtours fell 4p to 403p and First Choice 2p to 101p. Both stand at lows for this year.

rPeter Cowan was apparently seen brandishing the cheque book to buy 20,000 shares in Intercare, the healthcare products company. Mr Cowan, chief executive of Intercare, lost favour in the City in 1993 by selling shares at 140p to cover the costs of his divorce. Shares now trade at 57.5p.