Market Report: Smiths flies high on pounds 1bn bid rumours

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The Independent Online
IS SMITHS INDUSTRIES on the verge of clinching its long-awaited pounds 1bn deal ?

The aerospace engineer was one of the market's high-flyers yesterday, rising 35p to 910p despite a falling market as buyers were told to fasten their seat belts and prepare for a corporate take-off.

Smiths wants to boost its sales with a large acquisition, and yesterday's 4 per cent jump reinforced whispers that a deal is close.

However, the Square Mile's finest disagreed on the target of Smiths' affections. One school of thought maintained that the engineer could launch a raid in the French market and go for Sextant Avionique, a maker of electronic gizmos for the Airbus consortium. The company will be a good fit for Smiths and would increase its involvement in the civil aircraft market. The only snag is that Sextant is owned by the state-controlled Thomson CSF and the French are not renowned for selling their firms to foreign rivals, especially to les rosbifs. Or Smiths could link-up with a US group such as engineer Rockwell.

A braver bunch of dealers argued that Smiths could be flying its slide rule over a domestic rival. They said that a merger, or reverse takeover, with acquisitive midcapper TI, up 19.75p to 489.75p, is not out of the question. TI, backed by the aggressive US private equity fund KKR, is keen on a size-boosting purchase and would love to get its hands on FTSE- 100 listed Smiths.

The rest of the engineers were also buoyed by rumours of deals. Invensys was hoisted 8.5p higher to 338.75p after buying back a few shares and amid persistent talk of large disposals. Midcapper Charter soared 19p to 371.5p on revived rumours of an offer from overseas, while TT Group climbed 7.5p to 153.5p on vague suggestions of corporate action.

Pump-maker Weir sloshed 0.5p higher to 275.5p amid bid rumours and whispers that its outsourcing division is poised to win large contracts with around six water companies.

Among the big boys, British Aerospace flew 6.5p better to 420.25p on talk of a link-up with Italian rival Alenia, while defence group GKN, interims today, rifled 12p higher to 1,092p amid hopes of good figures and new contracts.

Remaining blue-chips had an off day as rate fears continued to weigh on sentiment. The FTSE 100 dropped 37.7 to 6250.6 in volume of over 1 billion - an unusually high level for the summer. Dealers said some brokers had taken advantage of the lacklustre day to sell stocks across the board with large programme trades.

The smaller indexes bucked the trend as speculative stories kept the buyers happy. The FTSE 250 ended 22.3 higher at 5992.4, while the Small Cap crawled 0.8 higher to 2719.9.

Results and analysts' notes provided the main talking points for the blue chips. Music group EMI and broker Merrill Lynch sang from the same hymn sheet. The US house highlighted the Internet and digital attractions of the stock and EMI promptly jumped 23.5p to 560p. Rehashed bid rumours were heard. Leisure group Granada beamed 19p higher to 643.5p after Sutherlands published a strong buy note and amid continuing talk of ITV consolidation.

Hopes that the recent heat wave would have boosted drinks sales propped up Diageo, 22p better at 647p, and Whitbread, up 30p to 899p, amid continuing rumours of a strike at Greenalls, 5p higher at 363.5p.

Information giant Reuters edged 16p higher to 909p on reports of a possible bid from Rupert Murdoch's News Corp. A two-way pull left Tesco unchanged at 164.75p in big volume. Rumours of merger with M&S, Sainsbury or Kingfisher are still there but the rise was probably due to book-squaring by a fund manager.

Cable group Telewest buzzed 3.25p higher to 268p in heavy dealing amid hopes of industry consolidation. But BT fell 42p to 1032p on fears of competition from the cable companies.

Dull numbers and legal concerns dragged BAT 18.5p lower to 516.5p. NatWest shed 41p to 1,205p despite good interims as cost fears and worries of a large acquisition took their toll. Smaller rival Northern Rock jumped 6p to 438p on revived talk of a strike, possibly from Lloyds, up 15.5p to 832.5p. Drug group AstraZeneca was off-colour after failing to hike the interim dividend and lost 62p to 2261p despite the promise of a pounds 1.6bn buyback.

The medical tiddler Aortech - the maker of heart monitoring kits - soared another 107.5p to 284p as a major broker prepared to publish a note with a price target of around 900p. The rise is good news for shareholder AIM Trust whose stock rose 11.5p to a record 118p.

National Power was hit by the regulator's decision to scrap the electricity pool and plunged 12.75p to 419.25p. Generator Powergen shrugged off the ruling and sparked 9.5p higher to 606.5p on revived talk of a US buy.

Bid rumour bonanza hit the undercard. Independent Insurance surged 20p to 318.5p on returning talk of a strike from Australia's AMP or Germany's Allianz. Paper group David Smith wrapped up a 10.5p advance to 196.5p amid whispers of a bid from a rival or a venture capitalist and optimism on rising paper prices.

Retailer Storehouse bagged a 4.5p advance to 122p on revived speculation of an offer from Debenhams, down 6p to 338.5p, or Philip Green.

Building materials group SIG jumped 5p to 241.5p on talk of a 285p-per- share bid, possibly from French giant Saint Gobain. StartIT.com - a vehicle to invest in IT start-ups - debuted on AIM with a 2.5p rise to 7.5p, while call-centre operator IMS soared 36p to a best-ever 356.5p. There is talk of stakebuilding from telecom giant Energis and of the pounds 150m flotation of its sports website Teamtalk.com. Phone parts maker Filtronic rebounded from Monday's rout, jumping 65p to 721.5p on bargain-hunting.

Hotel group Millennium & Copthorne checked out a 20p fall to 525p on fears that the strong pound is hammering tourism. Leisure group ENIC lost 3p to 124.5p but a deal with bookie Victor Chandler should be near. Consultant Proudfoot collapsed 6.25p to 18p after a profit warning.

SEAQ VOLUME: 1.05bn

SEAQ TRADES: 68,385

GILTS INDEX: 105.83 -0.18

KINGFISHER is believed to be close to announcing a corporate deal but proponents of a merger with Safeway, Tesco or Marks & Spencer will be disappointed. The B&Q-to-Woolworth's giant is expected to unveil a major expansion in its Polish DIY business. Dealers say Kingfisher, which owns 28 stores in Poland, wants to build "dozens" of DIY shops to boost its presence in Central Europe. The shares closed up 21.5p at 715.5p yesterday.

WALKER GREENBANK is attracting renewed takeover rumours. The wallpaper maker recently rejected an approach from former chief executive Charles Wightman. He and his venture capitalist backers could have another go with an offer north of 70p-per-share, a chunky premium to yesterday's 57.5p. However, they could be trumped by a European group, possibly from France, which is rumoured to want to bid around 80p, valuing WG at some pounds 47m.

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