Market Report: Yell rallies on talk of Google takeover approach

After last month's stinging profit warning from the listings publisher Yell Group, few investors would expect a takeover approach. But that is exactly what traders were talking about yesterday, and the word is that the internet giant Google is favourite to buy the company.

More than 45 million shares in Yell changed hands as the stock rallied 12.5p to 497.5p, and although there was no confirmation, the talk is that Yell's bankers, Goldman Sachs, have received a bid valuing the company at 650p per share, just under £7bn including debt. However, some traders believe that a bid by Google makes no sense when a significant majority of Yell's revenues still come from traditional paper-based directories. For them, a bid from a private equity source is far more compelling. Before re-listing in June 2003, Yell was owned by the buy-out houses Apax Partners and Hicks, Muse Tate & Furst, and listings groups have long been a favourite investment for the private equity world.

Hammerson, 105p firmer at 1,673p, was back in play as talk did the rounds that the US private equity giant Kohlberg Kravis Roberts is mulling a bid for the company. The chat came just a week after chairman John Nelson admitted that the company is a takeover target, although that came as no surprise to many investors. One said: "KKR must have looked at most of the FTSE 100 at one time or another." Traders also said that just because KKR may be looking at Hammerson there is no guarantee that a bid will come. Other property stocks rose on the rumours, with Land Securities 12p better at 1,992p and British Land up 22p to 1,498p.

The life assurance group Friends Provident was also being talked about as a potential target after the shares staged a late rally to close at the top of the blue-chip leaderboard, 16.75p better at 210p. More than 94 million shares changed hands, well over three times the average daily volume, as traders pointed to the usual suspects whenever FP bid stories do the rounds. Aviva, 13.5p better at 815p, and Prudential, half a penny worse at 781.5p, could both be in the frame, as could the US giant AIG.

Profit-takers forced Reuters 10.5p lower to 601.5p, almost 13.5 per cent below the value of Thomson's offer for the news group that values the shares at 697p. Traders put the selling down to concerns that regulatory issues facing the offer could mean that the deal will take a long time regardless of whether it succeeds or fails.

With the rate rise coming as no surprise to London traders, there was little in the way of selling after the decision was made public at noon. The FTSE 100 was in negative territory for much of the session and an afternoon rally soon ran out of steam. The FTSE 100 closed 25.5 lower at 6524.1.8 as Wall Street moved into triple digit losses.

The engineering and defence contractor Babcock International claimed a major scalp by beating the private equity giant The Carlyle Group in the £350m acquisition of Devonport dockyard in Plymouth. The deal is being financed by debt and the sale of 19 million new shares in Babcock at 475p per share. Traders said that the sale of the new shares went without any hitches and that demand from institutions was intense. By the close shares in Babcock had soared 53.5p to close at 531p, the top performer in the mid caps and a new all-time high. Devonport was previously owned by a consortium including Weir Group, 11p firmer at 662p, and Balfour Beatty, 1.5p better at 486.5p.

ABN Amro followed up a strong set of results from the catalogue and online clothing retailer N Brown by reiterating its "buy" advice and increasing its price target to 345p from 315p. The broker expects to see more upgrades on the back of Wednesday's numbers and told clients that the stock remains "a key holding" in the retail sector, helping the stock to close 8.5p firmer at 325.5p.

Down in the small caps, the marketing services provider Mice Group fell another 1.75p to 8.25p as a large seller was cleared out at below 7p. The stock has been in freefall for the last three years and although market makers reported some buyers coming in for the stock at the lower levels, for some traders the shares are pricing in a worst-case scenario.

Vividas Group, the digital streaming software provider, told investors that it had signed its largest ever contract to stream trailers for one of the "top three" Hollywood film producers. The shares rallied 11p to 80.5p by the close but traders have been banking on a big deal for some weeks - the stock has rallied from 25p since the start of February.