Market Report: NatWest presents case for Whitbread takeover of Greenalls

An impressive case for Whitbread to take over the under-performing Greenalls pubs and hotels chain is made by investment house NatWest Securities.

Greenalls has been a big disappointment since it retreated from brewing to concentrate on retailing and wholesaling. Its shares have crashed from 633p last year to 315p, closing unchanged at 367.5p.

NatWest maintains Greenalls' management does not have "a credible strategy" to improve the group's display and is "on a path on which it is destined to continue destroying the value of the company".

A hostile bid is not expected. Assets are around 382p a share and a bidder is unlikely to offer much of a premium. A "friendly merger" is a more "workable option". But such a deal would force Whitbread, firm at 794p, to abandon the beerage, a move it has strongly denied features in its corporate thinking.

Yet the resulting group would be in a powerful position. It would be the largest pubs chain, able to dictate terms to the remaining brewers. And Greenalls' up-market De Vere hotels would blend with Whitbread's Marriott hotel operations.

Rumours of takeover bids have intensified since Greenalls rolled out a profits warning in September. Allied Domecq and Rank are names in the frame.

The rest of the stock market suffered another dull, erosive day with more Far Eastern squalls, a cautious Bank of England view on inflation and higher interest rate fears combining to squeeze down on shares with Footsie, at one time off 113.3 points, ending 73.3 lower at 4,720.4. Supporting shares were also hit. A strong sterling display took a cruel toll of exporters.

With Footsie nearly 600 points below its peak, achieved only six weeks ago, there are growing uncertainties about the direction of shares. The shake-out is making many private investors anxious as they see profits evaporating. To some extent the decline is self feeding with the market now in one of its moods when it ignores positive signs, dwelling remorselessly on bad news.

In such a climate its a flight to quality and defensive stocks. Marks & Spencer, with Panmure Gordon drawing attention to its European operations, scored on the quality argument, up 11p at 584p; utilities were buoyed on their defensive merits with Thames Water leading the way, up 21.5p gain to 878.7p.

Among those hit by sterling's strength were engineer Siebe, meeting analysts and fund managers tomorrow, down 31p to 1,069p and Glynwed International, down12p to 221p. Imperial Chemical Industries retreated 24p to 841p.

Results met a mixed response. Commercial Union tumbled 55p to 745p although figures were in line with market expectations. The strong pound and a rumoured BZW downgrade did the damage. British Energy's confident interim statement lifted the shares 13p to 385p.

Barclays' cut-price BZW sale left the shares limping along at 1,480p, off 23p. Vickers, as Mayflower was harassed by BMW, the German car maker, into abandoning its takeover ambitions, fell 18p to 235.5p; Mayflower held at 176.5p.

Takeover activity provided some action. Etam rose 13.5p to 133,5p on the pounds 93m French bid; Care First, the troubled nursing homes chain, put on 12p to 153.5p as Bupa's pounds 241m offer was rejected; the market is looking for an American counter at around 170p.

Taylor Nelson, the marketing information group, fell 2p to 72p after disclosing it was in advanced talks to acquire for cash and shares French rival, Sofres. A rights issue is likely.

Workplace Technologies, a computer services company created by a MBO from ICL two years ago, rose to 209.5p from a 175p placing. Oxford Instruments fell 51.5p to 350p on a profit warning.

Some of the smaller resources shares perked up. Minmet added 1p to 6.75p on "encouraging" progress in the Devon gold hunt by its Ofex traded subsidiary, Crediton Minerals, up 2p at 19p. United Energy hardened to 18p on a US drilling report. Gaelic Resources' expansion programme lifted the shares 0.25p to 3.75p.

Acorn Computer held at 145p. Lehman Brothers placed at 130p the 15 per cent acquired from the Italian Olivetti group earlier this year.