Market Report: Greenalls ahead on rumours of bid by Whitbread

WHITBREAD basked in the glow of a pre-holiday rally yesterday as rumours of a pounds 1.1bn takeover of rival Greenalls enlivened a dull market.

Speculation of a tie-up between the two pub operators has been around before, but a whisper late yesterday afternoon suggested that Whitbread would mount a 410p-a-share bid, valuing Greenalls at pounds 1.1bn, when it reports results on Wednesday.

Greenalls, which had been treading water for most of the day, immediately jumped 32p on the news to close at 394.5p, while Whitbread frothed 21p higher at 1,056.5p. A combination of the two would give rise to a group with a market value of around pounds 6bn with interests ranging from pubs to hotels and leisure clubs.

The combined group would be one of the UK's largest pub-owners with around 4,200 houses scattered across the country. The regulatory framework is rather fuzzy, but it is likely that the new Whitbread would have to sell a few pubs to appease the competition authorities.

The merged group would also have a sizeable hotel chain thanks to the fusion of Whitbread's Marriott Hotels and Greenalls' De Vere. The third leg of the group would be leisure, with Greenalls' fledgling fitness chain set to be injected into Whitbread's David Lloyds clubs.

The FTSE 100 bounced back from Thursday's tumble but lacked the nerve to sustain a proper rally. It closed 54.6p higher at 6,552.2p, underpinned by a firm Wall Street.

Cadbury Schweppes melted amid mounting fears that the pounds 1.1bn sale of its non-US drinks brands to Coca-Cola could be halted by the competition authorities. The Mexican regulator yesterday said it would block the deal unless the two companies came up with significant concessions.The Australian, Belgian and European Union authorities have already expressed concerns. These worries sent Cadbury 45p lower to 829.5p - the biggest faller in the FTSE 100.

Tesco was back in demand, surging 7.25p to 184.75p on a return of rumours of a mega-merger with Marks & Spencer, down 5.5p to 424.5p. Fellow retailer Sainsbury bounced back from yesterday's fall, finishing 14.5p higher at 395p.

The publisher United News & Media continued to benefit from the recent purchase of a US Internet group. CSFB, Kleinwort Benson and Goldman Sachs were all pushing the stock, which finished at the top of the FTSE 100 pile with a 39.5p rise to 759.5p. The rival group Emap put on 52p to 1,319p amid positive sentiment towards the media sector. The FT publisher Pearson rose 17p to 1,322p after reporting a good start to 1999.

Smiths Industries flew 41p higher to 963p as investors warmed to its exposure to the booming aerospace industry. Vague rumours of a sell-off of its healthcare operations also did the rounds.

Financials were strong. Royal & Sun rose 23p to 536p as HSBC said the stock is worth 590p. Royal Bank of Scotland climbed 57p to 1,466 ahead of next week's results. Its mooted merger partner Barclays flirted with its 2,000p all-time high, before settling 31p higher at 1,974p.

Among the losing blue-chips, BAT shed 22.5p to 521.5p on profit-taking, while Powergen slipped 13.5p to 682p as it failed to announce the buyer of its two huge power stations.

The mid-cap had a good session, finishing 33 higher at 5849.6 - the highest since the start of the year. The Small Cap was also at its best in 1999, ending 12.3 up at 2570.0. Lex Service motored 93p ahead to 587.5p after buying the RAC for pounds 437m. The deal sparked rumours that one of the losing bidders, the gas group Centrica, 3p higher at 126.25p, could now go for the AA.

The metal-basher TT Group rose 13.5p to 196p on relief that it has withdrawn from the race for Hall Engineering. Rival Cookson put on 9p to 175.5p after a positive trading statement. The builders' merchant Wolseley benefited from the re-rating of Travis Perkins and moved 30p higher at 556.5p.

Bid rumours continued to swirl around First Leisure, up 12.5p to 265.5p. Shire Pharmaceuticals grew 22.5p to 458.5p. Positive figures are expected soon.

The oil drillers were in good form as the Brent price moved back above pounds 16 a barrel. Lasmo dug a 7p rise to 159.75p while spurned partner Enterprise was up 14.25p to 444p.

London International Group, famous for its condoms, firmed 2.5p to 180p on continued rumours that Seton Scholl, up 16p to 767p, or the Australian group Pacific Dunlop could strike soon.

The car parts group Partco confirmed a pounds 179m bid from Unipart and rose 7.5p to 242.5p, while the housebuilder Cala closed 4p higher at 186.5p after receiving an expected 190p offer from the management. The rival Miller could trump this in the next few weeks.

The microchip designer ARM Holdings soared 16.5p to 669p. It could benefit from imminent corporate action in the US chip industry. The long-suffering food producer Albert Fisher rose again, closing up 0.50p to 8.25p. A series of debt-wiping disposals is believed to be near.

Among the smaller fry, Manganese Bronze, the maker of the London black cabs, rose 47.5p to 260p after hailing a 250-275p management buyout offer.

SEAQ VOLUME: 1.2 billion

SEAQ TRADES: 79,277

GILTS INDEX: n/a

MAGNUM POWER, a maker of power supplies for computers, rose 0.75p to 14.75p yesterday amid talk of a substantial new contract. The shares, listed on Aim, have more than doubled in the past few weeks as rumours circulated that Magnum is to sign a multi-million pound deal with a US computer giant. Magnum, which has a market value of pounds 13m already supplies Siemens, BMW and Procter & Gamble.

THE SOFTWARE group Comino is believed to be planning a move from the Alternative Investment Market to the main list in midsummer. The shares, up 8p to 279p, have a good run of late after news of a contract win. Further deals for Comino's products are expected soon, while upcoming final results are expected to meet analysts' forecasts of pounds 2.6m-pounds 2.7m pre-tax profits, up from last year's pounds 1.95m.