Hope of takeover frenzy pushes water companies up

MARKET REPORT

Dealers are convinced that the takeover frenzy surrounding electricity companies is about to spill over into the water sector. The ball may be set rolling this week with Lyonnaise des Eaux-Dumez expected to be given clearance by the regulators to bid for Northumbrian Water.

Shares in Northumbrian closed 18p higher at pounds 10.13, valuing the company at slightly more than pounds 700m. "We're all waiting for this bid to come through from Lyonnaise, and it's created activity in the sector," said one dealer yesterday.

The speculation drove up several other water shares, which for the last two months have been overshadowed by the takeover activity among the electricity companies. Thames Water climbed 15p to 549p, Southern gained 17p to 701p, South West spurted 22p to 536p, and Severn Trent finished 22p higher at 649p.

Electricity shares were mixed yesterday, amid concerns that the latest raft of takeover bids would end up being scrutinised by the Monopolies and Mergers Commission.

Those fears were duly reflected in the performance of Southern, which, as expected, attracted an agreed pounds 2.8bn offer from National Power. Shares in Southern climbed 69p to 966p, but remained stubbornly shy of the pounds 10.10 on the table from National Power, down 11.5p to 503.5p.

Similarly, Midland Electricity, subject of a pounds 1.95bn bid from PowerGen, eased 10p to 965p. PowerGen finished just 1p better at 560p on a day the market finished on a high note with the emergence of buyers in afternoon dealings.

The FT-SE 100 share index, which looked as if it was to give up the 3,500 mark in early dealings, closed 12 points ahead at 3,520.2 despite an unsteady start to trading on Wall Street. The FT-SE 250 also managed a double- digit advance, with a 10.1 point gain to 3,958.9.

Action on the gilts pitch was more lively, fuelled by further hopes of another cut in UK interest rates following the release of the latest purchasing managers' index. Gilts recorded gains of up to half a point.

Almost half the day's equity business was conducted in the last two hours of trading. While that burst helped to push up the total share volume, the final figure of 639 million was far from respectable. Most of the leading 100 shares closed the session within a few pence either way of where they started. Indeed, one in six finished all-square.

Outside the leaders, Gartmore was in demand and rose 13.5p to 276p - just 3p adrift of this year's high - in the wake of last week's announcement that Banque Indosuez was looking to sell its 75 per cent stake. Mercury Asset Management, tipped as a possible buyer, firmed 1p to 900p. Gartmore, which shot up 39p on Friday, now has a current stock market value of pounds 556m.

National Westminster Bank, also tipped as a possible buyer for Gartmore, slipped 7p to 625p. That movement was out of line with the other clearers. Barclays firmed 1p to 750p, Lloyds added 6p to 696p, and TSB gained 2p to 278p.

Vague whisperings about takeovers and break-ups were heard in several other sectors. Pearson improved 8p to 597p after Henderson Crosthwaite put a 900p-a-share break-up value on the media company and said it was vulnerable to a bid while shares traded below 600p.

Thorn-EMI closed 11p up at pounds 14.85p on renewed hopes that its intended break-up would happen sooner rather than later.

The relentless climb of Regent Inns continued. The shares, which started the year at 307p, closed 14p higher at 592p. There was some talk that the pub company might soon attract a bid.

Regent's annual meeting is on Thursday, and analysts are expecting David Franks, managing director, to make another bullish statement on current trading.

Drinks analysts are already looking for Regent to boost taxable profits in the current year to next June by around 32 per cent to pounds 5.8m. The recent run in the shares has now put the company, which trades on a price/earnings multiple of 18.8, on a similar market rating to JD Wetherspoon. Results are due on Friday from Wetherspoon, up 1p to 618p.

Elsewhere, Frost Group, the petrol stations company, firmed a penny to 239p, as the shares were placed on Panmure Gordon's buy list.

Wembley remained in favour, gaining 5p to 294p. Jarvis Astair, a director, sold 20,000 non-beneficial shares held in trust at 290p each.

HP Bulmer, the cider company, shed 1.5p to 498p ahead of the start today of an analysts' visit. Matthew Clark, though, rose 7p to 614p as worries subsided about its takeover of Taunton, up 3.5p to 229p.

TAKING STOCK

r Menvier Swain, steady at 286p, may have a fight on its hands to win control of Scantronic, up 0.5p to 10p, despite last week's agreed pounds 2.5m takeover deal. Nisshen Electric, a French subsidiary of Kidder Electric of the US, has been buying Scantronic's 5.75 per cent convertible preference shares. Nisshen has bought 100,000, taking its holding to 26 per cent of the 1.31 million preference shares in issue. The conversion terms are 153 ordinary for every 100 preference.

r Shares in Hardy Oil & Gas were a notable mover on the oils pitch, rising 12p to 186p. There was some talk that the company, which has recently off-loaded a raft of assets to concentrate on four exploration areas, may soon announce some positive drilling results from the Bayul site near Australia.

Prices are in sterling except where stated. The yield is last year's dividend, grossed up by 20 per cent, as a percentage of the share price. The price/earnings (P/E) ratio is the share price divided by last year's earnings per share, excluding exceptional items.

Other details: xr Ex rights x Ex-dividend u Unlisted Securities Market s Suspended PP Partly Paid pm Nil Paid Shares. Source: Finstat.

THE INDEPENDENT INDEX

The index allows you to access real-time share prices by phone from Seaq. Simply dial 0891 123 335, followed by the 4-digit code printed next to each share. To access the latest financial reports dial 0891 1233 followed by one of the two-digit codes below.

FT-SE 100 - Real-time 00 Sterling Rates 04 Privatisation Issues 36

UK Stock Market Report 01 Bullion Report 05 Water Shares 39

UK Company News 02 Wall St Report 20 Electricity Shares 40

Foreign Exchange 03 Tokyo Market 21 High Street Banks 41

Anyone with a tone-dial telephone can use this service. For a detailed description of The Independent Index, including its portfolio facility, phone 0891 123 333. For assistance, call our helpline 071 873 4375 (9.30am - 5.30pm).

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DATA BANK

FT-SE 100 3520.2 +12.0

FT-SE 250 3958.9 +10.1

FT-SE 350 1758.9 +5.6

SEAQ VOLUME 639m shares, 29,464 bargains

Gilts Index 93.25 +0.25

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