Market report: Sun Life gains on talk of another AXA deal

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IS SUN LIFE & Provincial lining up a major deal?

The insurer attracted some speculative buying yesterday amid talk that its owner, the French giant AXA, is to go on a shopping spree.

Sun Life's stock settled just 2.5p higher at 452p despite a big jump in the market, but rumours of corporate action are growing louder.

Traders were excited by whispers that, after snapping up Guardian Royal Exchange, AXA could use Sun Life to buy another life assurer. One mooted target was the mutual Equitable Life. The life and pensions group has been seen as a takeover target since rival Scottish Widows fell to Lloyds TSB - up 28p to 834.5p ahead of Friday's interims - and something might happen soon. Equitable is in the midst of a court case about guaranteed annuities - a complex type of pension - and some experts believe that an adverse judgment could encourage a sale of the group.

Money will be no object for Sun Life. AXA has deep pockets, and its chunky warchest should soon be boosted by the mooted pounds 700m sale of GRE's life operations to Dutch group Aegon.

As often happens, the market was not happy with just one rumoured target and added the names of Legal & General, up 0.5p to 154p and Norwich Union, up 3p to 408.75p, to AXA's shopping list.

However, Norwich was also said to be on the radar of Halifax. The bank dropped 13p to 698p despite expectations-beating interims. Investors were disappointed at the lack of a cashback, but believe that the surplus capital could be used for acquisitions.

The other market talking point was the return of British Steel to the FTSE 100 index after less than a year in the midcap. BS, soon to merge with Dutch rival Hoogovens, soared 7.5p to a yearly high of 175.25p on huge volume of 41 million shares. Tracker funds were said to be piling in on speculation, confirmed after the close, that BS will replace Asda in the blue-chip index. The supermarket chain, up 1p to 219p, is dropping out of the FTSE 100 because the Wal-Mart bid has gone unconditional.

The food producer Geest, up 0.5p to 511.5p, will take BS's place in the midcap. Another FTSE 250 newcomer, the software group Merant - which replaced media company Newsquest after its takeover by an overseas predator - debuted with a 14p rise to 296p.

The rest of the market was stirred into action by a raft of heavyweight deals and a stronger Wall Street. The double boost ended the FTSE 100's seven-session losing streak and left the leading index 93.7 points higher at 6,262.8. Speculation was rife that some hedge funds were hit by London's rally as they had decided to go short on the market on Monday.

The second-liners underperformed, with the FTSE 250 ending 3.6 points lower at 5,959 and the Small Cap posting a 5.3 gain to 2,719.9.

Blue-chip deals are like London buses - you wait ages for one and then three come along at the same time. Reckitt & Colman, one of the Square Mile's oldest chestnuts, soared 84p to 785p after unveiling a pounds 4.86bn surprise merger with Dutch rival Benckiser. The all-share deal values Reckitt's shares at about 770p, and the closing premium triggered talk of a counterstrike by Unilever, up 1.5p to 583.5p, or even by a financial buyer.

BT, figures on Thursday, rang up a 66p jump to 1,117p after paying a lower-than-predicted pounds 3.15bn for Securicor's 40 per cent stake in mobile operator Cellnet. The long-expected deal left Securicor 39p better at 583.5p. Most of the cash should go back to its shareholders, although a big acquisition is possible.

Barclays completed the hat-trick of blue-chip events by surging 78p to 1,782p after the appointment of the head of Bank of Montreal as chief executive.

Glaxo Wellcome was another star of the FTSE 100, shooting 73p higher to 1,679p after its potential flu blockbuster was approved by US regulators.

Media giant Pearson made the headlines with an 18p rise to 1,234p amid whispers of a sale or joint venture of its TV interests, possibly to United News & Media, and a Deutsche Bank push.

Among the losers, Telewest plummeted 13.75p to 270.5p after losing out to US rival NTL in the race for Cable & Wireless Communications, up 10p to 700.5p. Some arbitrageurs believe CWC is cheap compared to NTL and could switch into the UK group. Shire Pharmaceuticals, to be merged with Roberts of the US, is also on the arbs' list and rose 20p to 531.5p.

Dixons lost 35p to 1,229p in tandem with its Internet offshoot Freeserve, down 10p to 195.5p despite staunch buying from broker CSFB.

In the midcap, microchip designer ARM soared 44p to 930p as buyers and rumours of a deal with Texas Instruments returned. Tomkins rose 9p to 285p on talk of an imminent sale of the bread division.

Water stocks mirrored the outcome of the price review. Anglian Water gushed 34p higher to 748p, but Yorkshire Water, hit hard by the regulator, leaked 32p to 461.5p, and Hyder lost 21.5p to 669p.

A profits warning savaged pubs group Greenalls, down 35.5p to 329.5p. A bid from a rival or venture capitalist such as Alchemy is a distinct possibility. IT recruiter Admiral plunged 61p to 751.5p after saying earnings growth would stall in the second half.

Broker Durlacher surged 125p to 2,775p, although it owns 10 per cent of net company DNP and 5 per cent of on-line auctioneer Icollector, rather than the 18 and 15 per cent figures reported on Monday.

Builders' merchant PTS lost 5p to 185p, but the expected offer from rival BSS, down 2.5p to 430p, should arrive soon.

Whisky maker Burn Stewart distilled a 3p rise to 19.5p on revived bid talk. Ulster TV rose 27p to 206p in whispers of a strike from a rival ITV company.

Engineer AEA Technology rose 36p to 378.5p after clinching a pounds 150m deal with BNFL to support nuclear reactor operators. A profit warning sent IT minnow Higham Systems 11p lower to a worst 41.5p. Construction group Utilitec lost 3p to 24.5p after saying the MBO offer will be below 27.5p per share.



GILTS INDEX: 105.89 +0.16

THE CONSTRUCTION minnow Birse has been targeted by some cunning buyers. The stock yesterday rose 0.75p to 8.75p in heavy volume of over 8.4 million shares amid rumours of a bid.

The group, which has just announced a management reshuffle, is believed to have attracted the attention of a rival. The mystery suitor is rumoured to be accumulating shares as a prelude to a bid north of 10p per share, valuing Birse at over pounds 19m.

MARKS & SPENCER yesterday shed another 7p to 374.75p - not far from its 333.25p five-year low - but help is on its way. In a note released yesterday, Charterhouse Securities advises clients to buy the struggling retailer and puts a 450p target on the stock. The broker says that margins should recover in the second half and argues that forecasts could soon be upgraded. Its note concludes: "It is now time to buy the shares to participate in the upside."