Market Report: Takeover talk builds up Tarmac shares

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TAKEOVER rumours swirled around Tarmac, the UK's biggest housebuilder, yesterday. The shares jumped 7p to 113p, a two-day gain of 13.5p.

Trading was often brisk with the BTR conglomerate and Minorco, the South African-controlled group, emerging as the favourites to strike.

The shares have climbed from a low of 51p in September with takeover speculation providing much of the power. But the hard-pressed group is also regarded as a classic recovery play.

However, profits this year could be as low as pounds 7m and there are jitters about the dividend being cut again. Analysts see further grief next year, with profits of about pounds 15m and at best a token dividend payment.

Tarmac has been busy reducing its debts and there are suggestions it is about to clinch the sale, for pounds 75m, of its Tarmac Econwaste subsidiary.

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BTR is thought to be keen to snatch another acquisition to build on the success it has enjoyed with the Hawker Siddeley engineering group. But Minorco, after yesterday's surprise management shake-up, has its supporters. The boardroom moves are seen as the prelude to a significant takeover and there is little doubt that Tarmac would fit Minorco's ambitions.

Any bidder would have the advantage of striking when Tarmac's fortunes are at a low ebb. Despite the share strength since September the price is far removed from the 161p achieved early this year and 1991's 283p.

The rest of the stock market was in fine form although Barclays' rescue of the Imry property group dampened enthusiasm towards the close. Barclays fell 8p to 379p.

It was once again a tale of two markets, with the second division outperforming the leaders. The FT-SE 100 index rose 7.5 points to 2,740.3. The FT-SE 250 index soared 30 to a peak of 2,728.8.

Trading was heavy with two programme trades and a succession of bed and breakfast deals ballooning turnover.

A below-par display by drug shares helped to hold back the 100 index. A 27p fall to 768p by Glaxo Holdings was, for example, responsible for wiping more than five points from the Footsie. SmithKline Beecham, down 12p at 492p, and Wellcome, 17p lower at 1,011p, also took their toll. Imperial Chemical Industries, largely because of its drug involvement, lost 24p to 1,009p. But cautious noises about chemical profits from UBS Phillips & Drew also contributed.

The drug sector was unsettled by continuing stories that Zantac, Glaxo's highly lucrative anti-ulcer treatment, faced increasingly intense competition as well as worries about health spending cuts here and in the US.

Rolls-Royce continued to benefit from recent aero orders, climbing 4.5p to 114p. Tales of close links with its arch-rival, Pratt & Whitney of the US, also inspired the shares. British Aerospace improved 6p to 153p.

Siebe, the engineer, started the session at a 411p peak. But take-profits advice from Carr Kitcat & Aitken and a Smith New Court view that 'this is not the best time to buy' left the shares 10p lower at 401p.

Said Carr's Alasdair Stewart: 'We are concerned that the share price strength will be used as a platform for another paper- financed bid. If history repeats itself this is likely to lead to underperformance'.

Burmah Castrol, up 11p at 703p, responded to takeover talk. The mini-conglomerate Suter was another to strengthen, up 8p to 92p, on bid hopes. The Hammerson 'twins' were also back in the limelight with the high-voting shares back to 299p.

Pearson, the banking and publishing group, had an eventful time, with a US investor at one stage picking up shares at above 400p. In New York on Wednesday Paine Webber, the US investment house, held a meeting on leading UK stocks and Pearson, it was said, received a strong recommendation. The shares ended 8p higher at 399p.

Automated Security (Holdings) fell 5p to 125p as Barclays de Zoete Wedd cut its profit estimates, from pounds 20m to pounds 14m and from pounds 28m to pounds 22m.

Hartstone, the hosiery and leather group, suffered from a 500,000 line that appeared to be accommodated in late trading. The shares fell 15p to 188p.

The food group Unigate slipped 3p to 279p following a profit warning from its Dutch associate. Hillsdown Holdings held at 130p despite a pounds 21m downgrading to pounds 140m by BZW.

Argyle Group, the Safeway supermarket chain, rose 6p to 395p on its Scottish presentation. Allied-Lyons, up 19p to 636p, led drinks higher.

Buckingham International, the troubled hotel group, held at 4.75p. The Takeover Panel has ordered a 2.75p a share offer.

IN HEAVY trading shares advanced again yesterday. The FT-SE 100 index climbed 7.5 points to 2,740.3 and the FT-SE 250 index reached a record high of 2,728.8, up 30. Turnover was 825 million shares, the highest since the devaluation euphoria. Bargains reached 25,334. Government stocks were firm

THE MOST actively traded share was Wills Group, the engineering equipment distributor where Leonard Licht, one of the City's best-known fund managers, has a 3.6 per cent stake. A placing, thought to be by Greig Middleton, of newly converted shares sparked the activity. Two other brokers sought stock. Wills has been reshaped by David Massie. The shares are 14.25p.

NOREX, the insurance and shipping group, advanced 27p to 142p after touching 148p. The excitement stemmed from a New York disclosure that its 48.2 per cent US associate expected to collect dollars 99m from a debt refinancing by a company called Global Marine. The deal will mean a dollars 35m profit for the US business, which claims Global loan notes as its main asset.