Market Report: Lloyds whisper sets L&G hare running

THE BLUE-CHIP bid rumour of the day was that the banking giant Lloyds TSB is to launch a pounds 10bn-plus offer for the insurer Legal & General.

The whisper unsettled Lloyds TSB, which ended 18p lower at 894p, but worked wonders for L&G, up 4.5p to 174.25p on heavy volume of nearly 30 million shares. The insurer managed to close higher despite the rumoured presence of a large seller in the market. Dealers welcomed the prospect of a chunky premium if, as mooted, Lloyds were to bid about 200p per share.

The whisper had a certain logic. It is no secret that Lloyds has the firepower and the will to do a deal, while L&G has long been seen as friendless in the fast-consolidating insurance industry. A tie-up between the two would create a financial services giant with a market value of over pounds 57bn and services ranging from retail banking to life assurance.

The rest of the market closed in positive territory, aided by bid speculation and a strong Wall Street opening. The FTSE 100 ended 29.5 higher at 6,378.3, while the mid cap finished 6.7 points better at 5,850, and the Small Cap posted a 3.2 rise to 2,586.4.

Traders lapped up shares in milk producers Express Dairies and Dairy Crest amid talk that the competition authorities are set to recommend a liberalisation of the milk market. Express finished 11p higher at 127.5p, while Dairy Crest rose 15p to 272.5p as the market predicted that the regulators' forthcoming decisions would boost profits.

The Competition Commission - the old MMC - is expected to urge the Government to break up the Milk Marque, the co-operative body controlling about half the market for the white stuff. Milk producers buy a large part of their supplies from the organisation and have often claimed that its complex structure allows it to ramp up prices, squeezing their margins.

If, as it seems likely, the Competition Commission heeds their advice and scraps the Marque, the producers' profits should receive a considerable fillip. The changing regulatory landscape could also unleash a wave of consolidation in a sector that in the recent past has been plagued by chronic overcapacity. Dealers were betting on a series of mergers involving Express, Dairy Crest, Unigate, up 10p to 445.5p and Robert Wiseman, unchanged at 174p.

Among blue chips, BOC stole the show. The stock soared 106.5p to a 12- month peak of 1,138p amid talk that it will merge with Praxair of the US to form the world's largest gas group. Good interim profits also attracted buyers.

BOC's bullish comments on Asia sent battered ICI 33p higher to 703p. Orange did even better, dialling a 46.5p advance to 852p amid rumours of a bid from overseas. British Energy powered 17p ahead to 617p on hopes of a pounds 500m cashback with today's figures.

HSBC lost 3p to 2,117p despite completing its $3bn share placing in under eight hours. Cigarette stocks were in demand; Imperial Tobacco rose 32p to 687.5p after great numbers and fighting acquisition talk. Rival Gallaher was dragged 22.25p higher to 393.75p, while BAT moved up 16p to 546p after an important court victory against some US smokers.

Retailer GUS surged 32.5p to 727.5p on bargain hunting, but poor old Marks & Spencer shed 5p to 402.75p as SG, Deutsche and Investec downgraded.

Oils were again on show; Shell rose 1p to 477.75p as rumours of a merger with France's Elf rumbled on. BP Amoco lost 0.5p to 1,139p after in-line figures.

Reuters put on 30p to 873p after announcing plans to float its US software division. Although, the information group will remain the major shareholder, the market is convinced the listing will unlock some of the value of the subsidiary.

The tumble of the day belonged to Rentokil Initial, down a hefty 70.5p to 291p after admitting that 1999 profit growth will total 10 to 15 per cent, below its legendary 20 per cent target. Fellow business services group Hays shed 33p in sympathy.

Next relaunched its blue-chip career with a 29p loss to 809p as profit takers moved in, while GEC fell 19p to 630p as talks over an alliance with the Japanese giant NEC failed to warm the market.

Morgan Crucible was the mid-cap bid favourite. The metal-basher was 19.5p higher at 314.5p as old rumours of a bid returned. Rival BBA, up 2p to 502p, or a European competitor were the hot tips.

Biotech group Shire Pharmaceuticals was close, soaring 25.5p to 470.5p after good numbers and whispers of US and European buys. Exciting results and an Internet partnership with IBM propelled the software company Sage 215p higher at 2,252.5p, very close to its all-time high. No such luck for fellow computer group Guardian IT; the stock closed 60p lower at 490p as Merrill Lynch was believed to have gone bearish. Fading bid hopes hit the insurer St James Place, down 11p to 253.5p, and Rugby, the cement maker, 6p lower at 121p.

Condom maker London International was up 4.5p to 187.5p on heavy turnover. A US counterbid at 230p per share to the Seton Scholl merger is thought imminent.

The car auction house Dentmaster motored 7.5p ahead to 2.25p after agreeing a 7.1p-a-share bid from a unit of the US communications giant Cox Enterprises.

Clothes maker FII rose a smart 4p to 28.5p after selling its footwear unit, a Marks & Spencer supplier, to rival Peter Black, up 17p to 363.5p. FII received over pounds 5m for the business, just below the whole group's market value. Shares in Sunleigh, the Maclaren buggies maker, halved to 0.18p after it said it would leave the market because of financing difficulties.

Dowding & Mills, the electrical parts group, rose 3.5p to 50p amid vague talk of bid, while the packaging machinery maker BWI fell to a real bid from German rival IWK and rose 9p to 100.5p.

SEAQ VOLUME: 1.13bn

SEAQ TRADES: 77,013

GILTS INDEX: 108.68 +0.12

CALDERBURN, a small furniture maker, may be near to being taken over by an overseas predator. A German group is believed to be about to launch an agreed bid in excess of 94p a share, valuing the Lancashire business at over pounds 29m. Shares in Calderburn - sales of pounds 39m last year - have risen 84 per cent since announcing takeover talks in January. They closed unchanged at a 12-month peak of 72.5p.

CLYDE SHIPPING, a tiny maker of marine equipment, is in advanced talks to buy a rival. The Glasgow-based anchor maker is thought to be ready to spend over pounds 30m. It plans to fund the acquisition through cash and loans worth pounds 26m. The mystery target has assets of around pounds 40m and is expected to make a pounds 4m profit in 1999. News of the imminent purchase sent Clyde shares, listed on the junior Ofex market, 5p higher to 215p.