Lucas merger with Varity set to go ahead peacefully; MARKET REPORT

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The Independent Online
Lucas Industries and Varity, after an eventful courtship, should marry in peace this week. Already Lucas shareholders have approved the deal and resounding support is expected from Varity investors tomorrow.

The creation of the world's second largest brakes manufacturer will create another upheaval in the blue chip Footsie index.

This week Cookson, the industrial materials group, was unceremoniously dumped to accommodate the Thorn EMI demerger.

The pounds 3bn LucasVarity combination will stake an automatic claim for Footsie membership. Most at risk are Courtaulds, the chemical group, and Southern Electric.

Shares of the newcomer are due to start trading on 6 September and should become Footsie constituents on 23 September.

The long Anglo-American engagement was often ruffled by rumours of a counter-bid, with US and German predators, as well as our own GKN and TI Group, said to be anxious to barge into the cosy merger. In the event only BBA, for an embarrassingly brief period, emerged as a declared intruder.

The creation of LucasVarity has allowed Lucas chief executive George Simpson to depart to General Electric Co, leaving the way clear for Varity's Victor Rice, who has been holding investment meetings with London institutions, to take charge of the merged group.

Lucas shares edged forward 1p to 241.5p in occasionally brisk trading. They have been as high as 254p this year.

The stock market charged to a new trading high with the FT-SE 100 index at one time up 11.2 points at 3,894.4. But it quickly ran out of steam. Weak Government stocks, unease in the futures market and a New York pulled lower by technology shares combined to hinder progress and Footsie ended 11.1 down at 3,872.1.

The supporting 250 index, however, remained on the uproad, building on its remarkable run with a 2.1 advance to 4,387.4 - its sixteenth gain on the trot.

Drugs were in fine fettle as those bewhiskered bid stories about Zeneca continued to circulate. The shares gained 11p to 1,514p, a peak. SmithKline Beecham also found itself pushed into the bid limelight with Roche, the Swiss group so often linked with Zeneca, named as a likely predator. It, too, found a new high, up 11p to 743p.

British Petroleum remained unsettled as stories swirled of a big line of shares - variously rumoured to be 13 million or 30 million - on offer. Although there was no evidence of a significant placing the shares at one time fell to 622p; they closed 1.5p off at 627.5p.

The day's most busily traded share was British Gas following the Ofgas review. The price rose 6.5p to 204.5p with Seaq putting turnover at 30.3 million shares.

Dairy shares perked up as Milk Marque agreed to Office of Fair Trading price demands. Northern Foods added 3p to 205p and Unigate 10p to 432p. Robert Wiseman put on 3p to 174p.

BAT Industries again felt the weight of US litigation with a 10p fall to 446p, largely reflecting heavy ADR turnover.

J Sainsbury dipped 8p to 399p following a pounds 10m profit downgrading to pounds 750m by NatWest Securities; National Westminster Bank was lowered 15p to 674p as SBC Warburg changed its stance from buy to hold.

Railtrack lost its recent exuberance, off 7p to 248.5p as dividend buying was overshadowed by profit taking. Retailers were caught by the lower than expected July sales figures; Marks & Spencer fell 6.5p to 492.5p and Kingfisher 8p to 660p. But signs of a housing revival lifted Carpetright 21p to 581p.

Ladbroke, still independent despite the heavy betting on a bid, cantered 4p ahead to 201p, anticipating figures next week. The shares are near their 12-month high and speculation continues about the intentions of Hilton Hotels Corporation, the US group which wants to unite the Hilton hotel spread. At the moment HHC has the US rights with Ladbroke the international claim. Bass, with its soap opera bid for the Carlsberg Tetley brewing group still unresolved, is thought to have lost interest in the betting to hotel chain.

Chieftain, the insulation group, gained 9p to 50p on take over hopes; Pillar, the property group, added 9p to 178p. It has held investment meetings and James Capel is said to be positive.

Universal Salvage, a vehicle salvage group, held at 268p. Chairman Cliff Bassett has sold 1 million shares; other major shareholders sold 1.1 million.