Market Report: French deal puts burden on Commercial Union

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The Independent Online
THE Commercial Union cash call, expected since it agreed a pounds 1.46bn French acquisition last month, is likely to be announced next week, possibly on Monday.

The insurance group's shares have been under pressure this week as some institutions have grown fidgety about the size of the call.

At the time of the French deal it was thought that CU would need pounds 400m. This week some have talked of a pounds 600m rights issue. The figure is likely to be nearer pounds 400m.

CU fell 11p to 542p, making a 51p fall this week. When the pounds 1.46bn French splash was announced the shares were 538p.

Shares invariably come under pressure at times of rights issues. Gibbs Mew, the brewer, illustrated what is a traditional weakness, tumbling 27p to 391p on a pounds 13.6m cash call and acquisition.

CU shares, in addition to uncertainty about the amount shareholders will have to stump up, have had to contend with worries about the merits of the deal.

The British group is buying the bulk of the insurance businesses of Groupe Victoire, which is owned by Compagnie de Suez.

There was at one time keen interest. But gradually the would- be bidders dropped out. When Generali, a big Italian insurer, lost interest CU was the only name in the frame.

Suez had been keen to unload Victoire for some time. Some felt it was prepared to take a knock- down price. But the sudden departure of the Italians left worries that CU had been tempted into paying too much.

Most other insurers were firm as the market continued to anticipate a possible French strike. Union des Assurances de Paris is known to have its sights on a British company, although it could be unquoted, perhaps a subsidiary of a quoted group.

The stock market ended the first week of rolling settlement on a confident note, with the FT- SE 100 index up 19.6 points at 3,114.7. It was the first close above 3,100 for two months. The supporting FT-SE 250 index was also strong, up 30 at 3,630.9.

The relative calm of the first rolling week has surprised some market men. However, there is still apprehension over the first of the new-style settlements, due to be completed next week.

J Sainsbury gained 6p to 405p as the expected counter-bid for William Low failed to materialise. Low continued to edge ahead, reaching 265p, up 3p.

Argyll, the Safeway group, provided the main supermarket development, dropping SG Warburg and taking on Barclays de Zoete Wedd as its joint broker with Panmure Gordon. Warburg, already handling Asda and Sainsbury, said the parting was 'entirely amicable'.

Wellcome jumped 29p to 634p on further consideration of its results but Glaxo fell from 598p to 574p (down 14p on the day) on its latest legal encounter with Novopharm, the Canadian drugs company, over its Zantac ulcer drug.

Hartstone, the leather group, had an uncomfortable session, touching 16p and closing at 17p, down 1p. The shares are perilously close to the 15p at which a rescue rights issue has been fixed. The issue is underwritten.

Car groups continued to respond to talk of record 'M' registration sales. Cowie gained 5p to 282p and Lex Service motored 5p to 464p. The components group GKN advanced 8p to 624p.

Waters produced waves ahead of next week's regulatory pronouncements, which could hit profits. The market appears to be taking the view that the sting will not be too hurtful. Electricities, facing their regulator next month, were strong.

Kingfisher managed to pull out of its decline as it appeared that Home Depot, the US do-it- yourself giant, may not be in a hurry to invade. The shares put on 8p to 509p. But Wickes, the builders' merchants, remained unwanted, falling 2p to 92p, a year's low.

United Biscuits crumbled 6.5p to 316p as the latest batch of takeover rumours faded.

Glenchewton, the toy group, was little changed at 37p. John Gunn, ex-British & Commonwealth, is a director.

UK Safety, a footwear group reversed into the TSW shell last year, provided the traditional Friday profit warning. The shares lost 14p to 51p.

But the property group Merivale Moore gained 11p to 71p as Warner Estates took a 20.5 per cent interest at around 90p, partly in exchange for properties.

Pelican, the restaurant group that paid pounds 11.5m for Forte's Dome chain of cafe/bars in May, held at 91p as Beeson Gregory forecast profits of pounds 5.1m this year and pounds 9m next. Last year Pelican made pounds 2.5m.

Among financials, Jupiter Tyndall gained 12p to 301p as the market continued to warm to the takeover of the Queen Anne's Gate management group.

Wembley, the stadium group where restructuring proposals are being considered, slumped 3p to 10p on some scattered but determined selling. Three parties are thought to be talking to the Wembley board about reshaping the debt-laden group.

St James Beach Hotels, operating in Barbados, is tapping the stock market for the second time in three months. It plans to raise pounds 1.1m through a share placing at 120p with institutions. In April, when the company came to market, Seymour Pierce Butterfield placed shares at the same price, raising pounds 7.2m. The shares have attracted little market attention. They are 122p.

Seacon, the specialist shipper and warehouse operator, represents a 'sound proposition' for capital growth, Bell Lawrie White says. Its analysts, James Glancy and Terence Harvey, believe it could be an attractive bid target. Profits will be lower at pounds 1.3m this year but the dividend will increase. They forecast profits of pounds 2.2m next year, climbing to pounds 3.7m in 1997. The shares are 84p.

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