Market Report: First Choice up on Airtours talk

IS AIRTOURS planning to disrupt the marriage between First Choice and its Swiss partner Kuoni? The market was awash with rumours that the UK's second-largest tour operator was about to turn the no-premium merger between its two rivals into a three-way scramble for the best seats in the European holiday market.

The smart money was on a 220p-a-share hostile bid for First Choice, owner of Unijet and Hays & Jarvis. The offer would value the UK travel group at a sunny pounds 742m, leaving Kuoni, the posh holiday specialist, out in the cold.

Airtours offered the customary "no comment" but the prospect of a juicy premium prompted traders to check in with First Choice in the hope of booking future gains. Some suggested that the battle of the tour operators could become even hotter, with the German group Preussag also willing to put its towel on First Choice.

First Choice stock travelled almost 11 per cent higher to close at 178.5p, close to its five-year peak. Volume was also sky-high with over 3.6 million shares traded. Airtours nosedived 6p to 490p as investors fretted at the costs of the bid.

An Airtours-First Choice link would be a travel powerhouse, with a big presence in package holidays and a market value of pounds 2.8bn. It would overtake Thomson, down 8p to 179p, as the largest seller of holidays to sun and snow-seeking Brits.

However, it could ran into competition problems as it would control one in four holiday trips originating in the UK, even though a recent anti- trust inquiry deemed the industry fragmented and competitive enough.

The rest of the index caught the holiday bug, with several buyers taking time off in the run-up to today's expiry of the March options, a periodic market worry.

The buyers' strike and a bit of profit-taking left the FTSE 100 down 26.3 points at 6,114.3, after an opening rally on Wall Street had helped to claw back earlier losses. The junior indices also ended in the red: the midcap shed 22 to finish at 5,463.3, while the small cap fell 1.1 to 2,373.8.

Diageo led the blue-chip retreat, fizzing up 34.5p to 673.5p. The drinks group was spiked by a remark from the LVMH chairman Bernard Arnault; the colourful Mr Arnault said his French luxury goods group was planning to sell its 11 per cent stake in Diageo within three years.

Cadbury Schweppes showed its alcoholic rival a thing or two. The stock sparkled 23p higher to 890p on rumours that Merrill Lynch had set a 1,125p target price. The broker DKB also helped by repeating its "buy" advice.

The aerospace brigade lost altitude amid bearish noises about a cyclical downturn. Rolls-Royce spun 11.75p lower to 255p, followed by Smiths Industries, down 33.5p to 919.5p. GKN fell 21.5p to 966p after announcing its much- leaked helicopter deal with Agusta.

The good news from the blue chips came from P&O and EMI. The ferry and cruise group sailed to the top of the FTSE 100 pile with a 40p increase to 790p. The music company was also on song, rising 20.25p t0 418.5p. Today is "Investor Day" at EMI and institutions wanted to stock up before meeting the new boss, Eric Nicoli.

Electricity groups were powering ahead. Goldman Sachs switched on PowerGen, up 18p to 692p, with an upgrade after some price weakness. The bank also pushed Scottish & Southern Energy with a reminder of its 700p target price. The shares buzzed 25p higher to 543p.

National Grid, up 13p to 431.25p, and Scottish Power, 10p higher at 539p, completed the utilities' party day.

Oils were in demand as the price of Brent rose overnight after the Saudis agreed some supply cuts. Shell, still looking for a partner, jumped 15p to 412p, while BP Amoco struck a 27p advance to 1,028p - a five-year peak.

For once the minnows followed the giants. Enterprise firmed 27.25p to 340p, and its would-be merger companion Lasmo rose 3.75p to 138.25p. Gaelic Resources, the Irish exploration group, put on 0.25p to 1.5p after it placed 44 million shares with rival Desire Petroleum at 1.25p, raising pounds 550,000.

British Borneo missed out on the oil frenzy, losing 0.5p to 137p after poor results.

Clothing chains were in spring sales mood despite recent sets of depressing official retail data. Marks & Spencer slid 13.75p to 379p, while Arcadia headed the midcappers' fallers with a 14p slump to 187.5p.

Among other retailers, Kingfisher suffered from further profit taking and closed 26p lower at 767p, while Morrison, the Northern supermarkets chain, bucked the trend and soared 18p to 298.5p after a set of solid results.

Norbain, the security products seller, looked very unsafe after letting 27.5p escape to close at 212.5p. The culprit was a profits warning and a gloomy statement on the UK market.

A profits warning also cracked Churchill China, the houseware group. A 9.5p fall to 86p was the final damage.

Goldsmiths, the jeweller, put on a precious 14p to end the day at 181.5p after confirming a 183p-a-share management buyout.

SEAQ VOLUME: 1.17bn

SEAQ TRADES: 86,766

GILTS INDEX: 116.32 +0.13

SANDWICH BANK & Crust Company is on its way back to Ofex after a six-month absence. Shares in the maker of own-brand sandwiches were suspended at 12.5p in September to carry out a refinancing. Yesterday the company asked for one more month to put its house in order. It said it was close to appointing a chief executive and that the refinancing was "well under way". The stock should resume trading in mid-April.

PROTEUS, the biotechnology company, is attracting institutional interest amid talk that positive news about its drugs is imminent. The shares rose by 6.5p to 42.5p yesterday after well-received presentations to investors.

Nomura has taken a shine to the company and now holds a stake of about 9 per cent. There are whispers of a clinical breakthrough in Proteus's hypertension or prostate cancer compounds.