Market Report: Cadbury-UB rumour does rounds again

THE STOCK market indulged in one of its favourite exercises - trying to enliven a dull session by resurrecting one of its favourite takeover stories.

The logic of Cadbury Schweppes swooping on United Biscuits has looked impressive for some time. It is widely believed the two food groups have held talks, with the initiative coming from Cadbury, which has made no secret of its desire to strengthen its role in the world food league.

The last round of rumours hit the market in April when UB shares surged ahead. They have since fallen back but yesterday rose 8p (after 12p), closing at 388p. Cadbury, supported by several leading investment houses, gained 12p to 459p.

Any takeover would provoke interest from the Monopolies and Mergers Commission. But there is little overlap and the market believes any bid would be approved.

UB's assets are put at 600p a share, a price that could prove too rich for Cadbury. Last year the shares were down to 235p.

But the confectionery and soft drinks group is keen to stress its growth ambitions. Some feel it will descend on an overseas company. But snapping up UB would strengthen its domestic operations and give it greater overseas exposure, particularly in the US.

Another factor that could point the finger at UB are indications that further expansion will be directed towards food and not the soft drinks operation, which has already achieved a considerable international spread.

Both groups have calender trading years. Cadbury is expected to produce pounds 399m, up from pounds 332.7m, and UB pounds 210m ( pounds 158.4m).

But Cadbury may not have the field to itself. Hanson, which battled with UB in 1986 for the Imperial Group, has been mentioned as a possible predator. After all it displayed interest in Ranks Hovis McDougall before the Tomkins takeover. Hanson fell 1.5p to 227p.

And the prospect of a Philip Morris assault is never far from the surface. The US group has made no secret of its European ambitions and UB could be an obvious target.

The rest of the market had another indecisive session, with rumours of a government corruption scandal breaking next week having little impact.

The FT-SE 100 index ended 1.8 points higher at 2,861.8 with a strong New York opening releasing shares from the drift of retreat. US shares were encouraged by the easing of pressure for higher interest rates.

Zeneca, as the debate about its pounds 1.3bn rights issue continued, shaded 1p to 616p with the nil paid rights 2p lower at 18p. The Prudential insurance giant shaved its stake to just below 3 per cent. But Hugh Jenkins, chief executive of the Pru's portfolio managers, said some of the group's investment funds had rebalanced 'their portfolios in the health and household sector', which had resulted in a reduction in the holding of nil paid shares.

He added: 'The Prudential will be taking up the majority of its rights and is supportive of the issue.' The Pru is a sub-underwriter of the cash call.

English China Clays, which produced a surprising pounds 113.4m rights issue to help finance a US acquisition, rose 9p to 425p. The group plans to float its construction business.

Coats Viyella, the textiles group, also tapped the market - raising pounds 33m to help meet the cost of taking over Berghaus, a Dutch women's wear distributor. Shares were placed by Barclays de Zoete Wedd and Cazenove at 218p. The price fell 3p to 224p.

And the desire for cash, which is clearly straining the market, extended to Oriflame, a door-to-door cosmetics distributor, which pulled in pounds 4.4m by placing 1.75 million shares at 250p through Panmure Gordon. The shares were little changed at 262p.

Power shares continued their progress on dividend hopes. National Power rose 5p to 364p and PowerGen 3p to 379.5p.

Tate & Lyle again advanced, gaining 8p to 386p. In three days the shares have sweetened 24p. The company is thought to have held investment meetings this week with, among others, Henderson Crosthwaite.

Supermarket shares were unsettled by an attempt, seemingly only partly successful, to sell 1.5 million J Sainsbury shares at 487p. Sainsbury retreated 12p to 485p; Tesco 3p to 218p and Argyll Group shaded 1p to 343p.

On a weak property pitch Palmerston Holdings was the main casualty, crashing 9p to 6p. Receivers have moved in on some subsidiaries and the group is said to be in talks with its bankers.

Shell gave up 2p to 620p as a suspected 4 million bed and breakfast was completed. The oil minnow Aminex rose 2.5p to 24.5p. East West Oil lifted its interest to 29.9 per cent and said it would take up its share of the one-for-one rights to raise Ir pounds 3.2m.

Construction group Jarvis held at 15p as the George Soros Quantum Fund said it had sold 600,000 shares.

The FT-SE 100 index reversed early falls, ending 1.8 points higher at 2,861.8. The FT-SE 250 index gave up 4.8 to 3,202.9. Turnover was a modest 528.8 million shares with 25,481 bargains. The account ends on Friday with settlement on 28 June. Government stocks were mixed.

Excitement at Clayform, the once high-flying property group that paid pounds 120m for the Stead & Simpson shoe shops chain five years ago. The shares rose 2p to 16p and in after-hours trading were said to have touched 26p. Martin Landau has become deputy chairman, and with Anthony Bodie has taken a near 5 per cent stake. Mr Landau built City Merchant Developers, which merged with Imry in 1988.

A row has broken out at Countyglen, a suspended property share headed by the Irish entrepreneur John Teeling. T Cowie, the garage group, and MF Kent, a builder, with 19 per cent between them, are calling for Dr Teeling and director James Finn to be replaced by the property man Lewis Davis and Patrick O'Shea. Countyglen shares were suspended at 60p in October last year.