Market Report: Footsie flourishes on Diageo buyback

BERNARD ARNAULT has cut his shareholding in Diageo. The stake held by his LVMH luxury goods group has been reduced from 10.9 per cent to 6.8 per cent as the foxy French tycoon took full advantage of a massive share buyback by the spirits behemoth.

Diageo, through stockbroker Cazenove, moved into the market and acquired 161.5 million shares at 669.5p each. It had been given buyback approval by shareholders.

LVMH claimed much of the buyback, unloading more than 140 million shares and netting around pounds 960m. The exercise cost Diageo more than pounds 1bn.

The French group's increasingly acrimonious campaign to win control of Italy's Gucci fashion house has generated a deep thirst for cash. It is likely that the rest of the group's Diageo stake will soon be placed to help fund a hostile takeover bid already expected to cost more than pounds 3.1bn.

Mr. Arnault quit the Diageo boardroom three months ago. His departure was widely interpreted as an attempt to give him as much flexibility as possible in disposing the long standing stake.

Diageo shares rose by 23.5p (after 44.4p) to 694p.

Share stake interest was also switched on at National Power. Enron, the US group, let it be known that it may feel obliged to buy into the country's second-largest generator, sending its shares 3.5p (after 13p) higher to 487p.

Paul Chivers, a vice-president of the American energy group, said it would continue to eye takeover targets in Britain following its pounds 1.4bn acquisition of Wessex Water last year.

Mr Chivers said a stake in NP "may be strategically appropriate subject to the market and our specific strategy".

Mr Chivers' comments come as NP looks increasingly vulnerable to a takeover strike. The shares have declined from 694p 15 months ago, hitting 453.5p earlier this month.

There have been signs of institutional unrest, with some analysts fearful that NP will be forced into dividend cuts in the next few years.

Footsie produced a late flourish, closing at its best level of the day, although New York turned in an uncertain display. The FTSE 100 ended 54.2 points higher at 6,139.2; at one time if was off 23.4. The mid cap index was again in negative territory, but the small cap continued its merry way, achieving a 6.3-point gain to 2,394.3.

The escalation of the Balkan conflict and Moscow expelling Nato representatives were largely ignored. Turnover, ballooned by the Diageo buyback, was again above 1.4 billion shares.

Woolwich, in heavy trading, was the best-performing Footsie constituent, jumping 28.5p to 394.75p on talk that it could be involved in corporate action and hopes that it will score from a rush of mortgage activity in the South-east.

Prudential Corporation joined the Internet stampede. Its Egg banking offshoot, which has pounds 4bn under management just five months after being launched, is planning to offer customers free Internet access from the end of next month. The shares rose by 15p to 785.5p.

Ladbroke, changing its name to Hilton, added 10.25p to 296.25p, and British Energy, despite disclosing a pounds 66m exceptional charge, rose 28p to 623.5p.

British Aerospace climbed 15p to 42.75p as it became potentially richer as a result of the Balkans action and the improvement in the crude oil price, which enhances its arms-for-oil contracts with Saudi Arabia.

With Brent crude at around $13.70 a barrel (up from $13.26), oils flared. BP Amoco rose by 26p to 1,037p and Shell 8.75p to 411p. Enterprise Oil rose 13.25p to 345p and would-be partner Lasmo by 7p to 131.75p.

Unilever, involved in investment presentations, firmed 3.5p to 570.5p, but Tate & Lyle, despite a positive trading statement, fell 8.5p to 401p.

Glaxo Wellcome improved 24p to 1,896p after Commerzbank said buy, and Zeneca rose 96p to 2,770p as its merger with Astra obtained US approval.

Supermarkets felt the impact of the sector's referral to the Monopolies and Mergers Commission. Asda fell 1.75p to 153p; Safeway 9.25p to 238p; J Sainsbury 18.75p to 377.75p and Tesco 4p to 169p. Other retailers weakened on the unimpressive John Lewis figures, with Debenhams off 11p to 469.5p. Goldsmith, the jeweller going private, sparkled 9.5p higher to 193p on talk of a Signet strike.

RMC, the cement group with year's results due next week, firmed 11.5p to 771,5p. A fall from pounds 307.7m to around pounds 265m is expected. Last year the shares were 1,400p.

AEA Technology crashed 248p to 369.5p after warning of flat profits, and engineer TI Group fell 29.25p to 382p.

Hall Engineering was little changed as TT, down 9.5p at 178p, rolled out an increased offer of 136p a share, which Hall promptly rejected. Armour Trust, a car accessories group, shaded to 15p after signalling a possible bid.

Wace, the printer, inked in a 6.5p gain to 88p following the higher 90p- a-share offer from US group Applied Graphics. Schawk, the other American chasing Wace, appears to have pulled out of the bidding.

SEAQ VOLUME: 1.4 billion

SEAQ TRADES: 85,224

GILTS INDEX: n/a

COULD Century Inns be the next pub chain to get caught up in corporate action? After the market closed there was talk of a 150p-a-share offer. Merchant bank Deutsche Morgan Grenfell was said to be readying a bid.

Century is undervalued and looks a tempting target for a venture capitalist or the aggressive Enterprise Inns, currently pondering a bid for Inn Business. Century held at 115p.

THE RECOVERY in the price of crude oil injected much-needed life into the three oil explorers once known as the Falklands flyers - the companies involved in exploration off the Falkland Islands.

Desire Petroleum, which flared to 445p a year ago, led the way with a 14.5p gain to 38p. Greenwich Resources rose by 2.5p to 9p and Westmount by 12.5p to 30p. GR and Westmount have stakes in Desire.