Market Report: WH Smith seen as target in spot the next takeover game

IS WH SMITH about to be engulfed by the wave of bid rumours currently sweeping some of its fellow retailers?

The stationery chain yesterday firmed 4p to 452p as some cunning investors identified it as the next takeover play in the sector.

Smith's rise went largely unnoticed as the market focused on higher- profile sagas involving Marks & Spencer, Sainsbury's and Arcadia.

However, some knowledgeable punters muttered that the newspaper and bookseller could be the subject of one of the first bids of the new millennium.

The list of potential predators was busier than a WH Smith store during the Christmas shopping period, but the name of Knutsford, 2p higher at 240p, stood out from the crowd.

The acquisition vehicle set up by Asda's Archie Norman, and the property gurus Nigel Wray and Nick Leslau, has been linked with the likes of M&S, House of Fraser and Arcadia but so far no bid has materialised.

Some market watchers are now convinced that the hotshot entrepreneurs might break their duck with a strike at WH Smith.

The story is not without logic. In recent times, Smith has been battered by the bears and the shares have nearly halved over the past 12 months. At these levels, they are looking cheap - a fact that will not have escaped the opportunistic eye of Mr Norman & Co.

Unlike other retailers, Smith is also an attractive proposition for the property skills of Messrs Wray and Leslau as it owns the freehold to most of its shops. It also has an Internet business with an interesting e-commerce potential and, last but not least, a number of disgruntled shareholders who would probably sell at the right price.

The rest of the sector remained firmly in the bid spotlight. Marks & Spencer staged a late afternoon collapse, losing 27p to 273.75p after Tesco, 11.25p lower to 174.25p, was rumoured to have ruled out a bid in the near-term and the Barclay brothers said they had no interest in bankrolling an offer from entrepreneur Philip Green.

Traders believe that Mr Green's attention will now turn to fashion chain Arcadia, 3.75p up to 70p, or fellow strugglers Storehouse, down 0.25p to 44.5p, GUS, up 6.5p to 338p after a huge derivatives-linked trade, and Safeway, 8.25p to 197.75p. Sainsbury's bagged a 21.75p rise to 322p on renewed whispers of a sale of the family stake to a bidder.

This bid excitement was not enough to prop up the overall market and the FTSE 100 fell 28.8 to 6,710.7. Volume, at 1.5bn, was lower than usual amid talk that a couple of big Scottish institutions had closed their books for the year.

Profit-taking in the heavyweight telecom sector, coupled with weakness in New York and in the bond markets, were behind the soggy session.

After days of rampant rises, Vodafone Airtouch, 7.25p lower to 304.25p, Energis, 212p down to 2,691p, and Colt, 42p lower to 3,030p, fell prey to the profit-takers. Even BT was down 55.p to 1,427p despite talk of a mega-merger with Spain's Telefonica, while Cable & Wireless dropped 66.5p to 1,014.5p despite whispers of an e-commerce alliance with bank HSBC, 10p down to 847p.

Rival lender Abbey National jumped 27p to 976p on whispers of an alliance with Belgian insurer Fortis.

Fellow insurer Old Mutual firmed 4.25p to 162p on vague whispers of a deal.

Other sectors were also on bid alert. In leisure, Bass frothed 34p higher to 719.5p on whispers of a strike from Belgian rival Interbrew or even domestic competitor Granada, 25p better at 597p. Hilton Group checked in a 12.25p rise to 194.75p on returning talk of a spin-off of its Ladbroke betting unit.

Media stocks made the headlines for most of the day before a late bout of profit-taking erased some of their gains. Pearson soared 189p to 1,980p before settling 57p higher at an all-time high of 1,848p. There is talk that today's trading statement could bring news on its Internet tracking stock. Additional rumours pointed to a web deal with American On Line or even a bid from Time Warner.

Reuters jumped 32p to 808p on hopes of a tracking stock for its burgeoning Internet activities.

The FTSE 250 had a drab day, falling 16 points to 6,267.4 amid weakness in some of the much-hyped tech stocks.

TV decoder maker Pace Micro, 31.75p down to 502.25p, personal finance website eXchange, 25.5p lower to 359.5p, and videogame seller Electronics Boutique, 2p worse to 35.5p, were high on the profit-takers hit list.

However, software group Computacentre bucked the trend with an 88.5p rise to a best-ever 1,121p on hopes of new deals, while game-maker Eidos buzzed 316p higher to a record 6,366p after a deal with Disney.

Back in the real world, oil explorer British Borneo flared 5p higher to 181.5p on whispers that a bid is near. Enterprise Oil, 10p higher to 435p, or a foreign group could strike soon.

Housebuilder Berkeley cemented a 41.5p rise to 710p on expectations of good results today, while WS Atkins rose 32.5p to a record 747.5p after winning a pounds 70m contract to run transport services for Surrey Council.

The Small Cap continued its upward march, rising 2.2 to 3,009.2 as rumours of new deals refused to die down.

Production group Prime Entertainment enjoyed a 2p rise to 4.5p on talk of a couple of film contracts. Joe Bloggs entrepreneur Shami Ahmed was said to have increased his stake in Prime.

Richard Branson's retail chain Victory Corp firmed 3.75p to 13p on rumours that the bearded tycoon will reverse its Virgin Internet business into it.

Computer game maker Digital Animations beamed 51p higher to 106.5p after announcing talks over a net venture with news agency PA. Rival Rage Software rose 3.75p to 54.5p after the placing of a huge stake. Rumoured sellers included a big institution and tipster Jim Slater, while mooted buyers included the hi-tech giant Sony.

Packaging minnow Boxmore wrapped up a 55.5p jump to 210.5p after unveiling a bid approach, possibly from US rival Tyco. Internet group Magic Moments rose 1p to 10.75p on whispers of a web deal. Computer repair specialist CRC firmed 2.5p to 126p after a deal with US freight giant AEI.

SEAQ VOLUME: 1.59BN

SEAQ TRADES: 119.307

GILTS: 107.48 -0.10

f.guerrera@independent.co.uk

THERE IS talk of a big move at headhunter Corporate Executive Search. The AIM-listed shares in the IT and financial recruiter jumped 2p yesterday to a record 6p amid whispers of a major deal. The rumours are that a private company with e-commerce interests is eyeing a reverse takeover of Corporate. Insiders said the company's directors were locked in a board meeting yesterday and an announcement should not be too far off.

SUNDERLAND football club is enjoying a great season on and off the pitch. Shares in the club have kept up with the team's progress up the Premiership table by rising some 55 per cent over the past five months. Yesterday, they shot 7.5p higher to a 12-month high of 675p. Fans of the stock believe that Sunderland has caught the eye of a cash-rich media group which is willing to buy a stake in exchange for the club's TV rights.

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