Market Report: Investors fill trolleys in hope of Sainsbury swoop

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TAKEOVER bids and deals could soon swamp the market, despite the sustained volatility in share prices - said to have resulted in several large deals being shelved in recent months.

There is a growing belief that companies are becoming keener to make the most of the economic recovery through acquisitive moves. Any imminent deals, however, would have to be made against an unsettled market backdrop.

Share prices were yesterday rattled by a slide of pounds 2 in longer- dated gilt prices caused by a poor response to the pounds 2bn auction and weaker US bond prices.

The gilt auction result saw Footsie down nine points after being in marginally positive territory, with analysts predicting that British interest rates might have to rise half a point.

A fall in US bond prices when Wall Street opened made matters even worse. Footsie was off 20 points less than 30 minutes after the street kicked in, and continued to slide all the way to the close of dealings to 3,082.3 - a fall of 34.9 points on the day.

More than a third of total trading volume of 600 million shares arose from deals struck in the last 90 minutes of the session.

Sainsbury topped the list of takeover rumours. The supermarket group was said to be close to making a counter offer for William Low, which has already accepted a 235p a share bid from Tesco. There were tangible signs of arbitrageurs moving into Low. The shares jumped another 12p to 280p amid an early morning flurry of deals. More than 3 million shares changed hands. There were several trades of 100,000 shares.

Some dealers said that Sainsbury, 1p softer at 410p, might pitch its bid as high as 310p in an attempt to deter Tesco from lifting the stakes.

A bid at that level would value Low at more than pounds 200m, against the pounds 154m on the table from Tesco, up 3.5p to 240.5p.

Takeover speculation also encompassed some golden oldies.

Cray Electronics, which has been transformed from a declining company into a technological growth stock worth more than pounds 400m, is again rumoured to be on the scout for acquisitions.

Its sights may be focused on parts of Racal Electronics, which bucked the market by rising 5p to 257p.

Turnover in Racal shares totalled 1.3 million.

Some still believe that Cray might be bold enough to make a full bid for Racal, despite its being worth more than pounds 700m. Cray eased 2p to 183p.

Talk of a bid by Tomkins, off 3p to 223p, for Northern Foods, steady at 201p, also did the rounds.

And there were a couple of real deals for the market to digest.

USM-quoted Castle Communications climbed 15p to 355p on a recommended pounds 25m, 360p-a- share bid from AEC Holdings, a subsidiary of Alliance Entertainment of the US.

Holders of nearly 52 per cent of the shares in Castle, a publisher of multi-media products, have accepted.

Directors have pledged their 730,000 shares, worth pounds 2.6m.

Dealings in IMC, another USM stock, were suspended at 2.5p before it revealed an pounds 11.5m takeover of Red Mill Snacks. The deal involves the issue of 463 million IMC shares and pounds 2.25m cash.

IMC also reported a small decline in taxable profits from pounds 377,000 to pounds 364,000 for the year to April.

IMC said Red Mill, which was previously owned by Hazlewood Foods until 1980, would become its core business and would be changing its name to Continental Foods.

Company results, small and large, also provided plenty of grist to the mill. BT slipped 7p to 375p on first-quarter figures. Reuters dropped 21p to 459p and Lex Services lost 30p to 447p on their interim results.

Water utilities were generally bubbly ahead of today's announcement of the latest 'K' pricing factors from Ofwat.

Main movers included Yorkshire, up 16p at 541p, and Severn Trent, ahead 8p to 539p.

Card Clear, maker of electronic systems to prevent fraudulent use of credit cards, is raising pounds 800,000 of expansion funds. Installations and orders for the Hot Card Broadcast system exceed 1,400. Card fraud cost UK banks more than pounds 129m in 1993. Fund- raising is via a placing and a one- for-five open offer at 36p. Last mid-price in the shares, quoted on the 4.2 market, was 37p.

The guard of non-executives, stockbroker and auditor are being changed at European Leisure, owner of Camden Palace. Geoffrey Nichols and Kevin Wylie, non-executives since 1987, are being replaced by Ray Reed and Victor Steel, a former executive at Beecham and Guinness. Ernst & Young replaces KPMG as auditor, and Greig Middleton has become UK broker.

Shield Group unloaded a raft of news that looks set to keep buyers away from the 9.5p-priced shares in the owner of the Stickley Kent property business. Profits of pounds 282,000 dissolved into losses of pounds 1.2m in the year to March. Brian Markeson has resigned as finance director to pursue other interests. And a recent move into information technology has caused several problems.