Market Report: Market braced for huge Diageo placing

AS THE stock market braced itself for a huge share placing in Diageo, there were indications that the spirit giant's reign in Spain could be coming to an end. The shares, as Footsie ended its losing streak, gained 21.5p to 670.5p in busy trading.

The share placing has in effect been signalled by Bernard Arnault, whose LVMH luxury goods group sits on 11 per cent of Diageo, worth about pounds 2.5bn. He decided on Wednesday to let it be known that the stake could be sold to fund his acquisition of the Gucci fashion house.

Three months ago Mr Arnault resigned from the Diageo board, giving him freedom to unload his stake without worrying about restrictions on directors' share dealings. Bidding is thought to be going on for the Diageo stake, which is likely to be unloaded through a bought deal.

As Mr Arnault prepares to take his leave of the former GrandMet/Guinness group, stories are swirling that it intends to retire from its less than glorious excursion into the Spanish brewing industry.

It has been Spain's biggest brewer since the 1991 takeover of CruzCampo for just over pounds 500m. Now the talk is that it will sell to Heineken, the Dutch group ranking as Spain's second-largest brewer, for around pounds 400m.

CruzCampo, which has persistently underperformed, has 20 per cent of the Spanish beer market; Heineken, through El-Aguila, accounts for 17 per cent.

Diageo has been selling off peripheral spirits brands to concentrate on its major labels. If it is selling its Spanish beer unit it could be tempted to unload other brewing interests, such its Jamaican operation and, perhaps, even the famous Guinness business.

One of Mr Arnault's suggestions when he unsuccessfully opposed the GrandMet/ Guinness merger that created Diageo was that the beer side should be hived off.

Footsie climbed by 68.3 points to 6,085, and supporting indices also rallied. It was another day of heavy trading, with volume topping 1.3 billion as fund managers prepared for their first-quarter reports and other investors manoeuvred for the end of the tax year.

A much firmer New York display and growing hopes of further interest- rate cuts helped to overwhelm worries about the Balkan conflict.

The mad scramble for anything with a touch of the Internet continued, with WH Smith rising a further 45.5p to a 703p peak as Dresdner Kleinwort Benson claimed the shares could go to 900p. Dixons recovered much of its equilibrium with a 61p gain to 1,300p. Durlacher, the stockbroker plugged into the World Wide Web, jumped 75p to 1,350p, a peak; the shares were 216p a year ago.

British Energy was the best-performing Footsie constituent; the shares jumped almost 12 per cent to 595.5p after positive comments from HSBC. The investment house met Energy executives on Wednesday and decided to lift its profit estimates from pounds 278m to pounds 295m and from pounds 249m to pounds 302m. Warburg Dillon Read also supported Energy, suggesting a share price of 750p.

The failure of the rumoured profits warning from Scottish & Newcastle to appear lifted the shares 22.5p to 687.5p, and Bass firmed 21.5p to 902.5p.

Conditional dealings started in property group Canary Wharf, with the shares up 6p from the 330p placing with institutions. Under the terms of the float, private shareholders cannot deal until Thursday - further evidence of the way the market discriminates against small investors.

Northern Foods improved 5p to 108.5p following BT Alex.Brown support, and Tate & Lyle firmed 4.5p to 409.5p on expectations of a positive trading statement. Hazlewood Foods, ahead of an investment dinner on Monday, was little changed at 125.5p.

Zeneca, as the merger with Sweden's Astra edged towards completion, improved 62p to 2,674p. Dealings in the new drugs power are likely to start on 6 April.

Chiroscience, up 11.5p to 213p, also drew some comfort from Zeneca after getting back the rights of its anaesthetic, Chirocaine, from the drugs giant. Zeneca dropped Chirocaine because of competing Astra products. Under the deal Zeneca continues to provide funds to Chiroscience and is paying pounds 10m compensation.

NMT, the disposable syringe maker, rose 18.5p to 88.5p after raising pounds 15.3m at 68p a share. WestLB Panmure believes the shares will go to 195p.

Takeover rumours swirled around Thorntons, the chocolate maker, up 10p at 238.5p, and Kwik-Fit, the tyres and exhausts group, 3.5p to 431p. Wace, the printer, agreed a 90p-a-share offer from Applied Graphics, the US group. The bid trumps an 80p shot from another US group, Schawk. The battle started in January when Photobition, the photographic group, mounted a hostile bid.

Once high-flying Corporate Services firmed 5p to 66.5p on takeover rumours. After hours it was announced that Geoffrey Brailey had quit as an executive director and Roger Eden as chief executive, although the latter stays on the board. A fortnight ago the group surprised the market by disclosing that its results would be scarred by provisions and write-downs. The shares were 261p last year; they fell from around 170p once the group's difficulties became known

Sports Internet, which arrived early this month after a 25p placing, jumped 21p to 146.5p. The market suspects an acquisition and suspension is imminent.

SEAQ VOLUME: 1.3 billion

SEAQ TRADES: 86,246

GILTS INDEX: n/a

A MANAGEMENT buyout could be on the way at United Overseas, a dealer in branded goods.

The shares have climbed from 14p to 23p, and they firmed by a further 0.5p yesterday with more than 1 million traded.

The price has tumbled from 121p a year ago, upset by a warning that profits were under pressure. In 1997 the group produced profits of pounds 7.1m; the market expects a figure of around pounds 4m for last year.

THERE'S BEEN an odd share buyback at Britannia, the construction group.

Its 14.5 per cent stake in British Mohair has been sold at 90p a share to the Swedish businessman, Peter Gyllenhammar, who has in turn sold his 25.5 per cent interest in Britannia to the company for cancellation at 43.34p a share. Britannia rose by 4.5p to 45p and Mohair by6.5p to 86p.

Mr Gyllenhammar is resigning as a director of Britannia.