SHARES AND MARKET REPORT: Somerfield may be next stop for Icelandic invaders

BAUGUR, THE Icelandic retail group whose ambitions in the UK appear to hold no bounds, is planning an audacious pounds 1bn bid for Somerfield that would allow it to merge the Iceland, Kwik-Save and Somerfield chains into a new force in the supermarket industry, if rumours swirling yesterday are true.

The idea that the Icelanders will make a strike for Somerfield is not new, and has surfaced in the market repeatedly as Baugur has built a 5.55 per cent stake in the company. But the strength of the supermarket group's shares yesterday and the detail of the rumoured proposals were. Somerfield shareholders will get 190p per share in cash, the speculators said.

Sceptical analysts argued that speculators need a bid, since the current share price cannot be justified on the fundamentals of an unexciting business. Sales have been squeezed as the bigger supermarket chains, Tesco and Asda, have won market share from mid-sized players. But that is the speculators' point: by putting Somerfield together with Big Food Group, which owns the Iceland chain and whose acquisition by Baugur is close to completion, you claw back some of the benefits of scale, in terms of product buying, that has been lost to the supermarket giants. Longer-term, there would also be the opportunity to rationalise the store portfolio and switch under-performing outlets to other formats. Somerfield is one of ABN Amro's tips to be taken over this year.

Somerfield shares climbed to their highest level since last April amid all the excitement, up 4p to 162p. Big Food Group is being taken over for 95p per share in cash, and its shares dipped 0.5p to 94.75p.

Elsewhere in the retail sector, rumours that a second predator will emerge with a bid for Woolworths sent its shares up 0.25p to 48p and, after the close of trading, the company said it had rejected the 50p-55p offer from Apax Partners.

Traders got tantalisingly close to seeing a 5 at the front of the FTSE 100, but they had to settle for 4,995.5 at the close, up 15.7 points. Strong buying of Vodafone, the UK's biggest company, in the closing auction pushed the index to its best level of the day. The telecoms giant closed up 0.25p at 139.5p, but if it had managed another quarter-penny, the FTSE 100 would have clambered over 5,000 for the first time since May 2002.

Fund managers made some of the biggest gains, the latest bull run by equities promising to swell their fees. Schroders was the top blue chip, up 24.5p at 793p, while Amvescap was 6p stronger at 1,026.5p.

The FTSE 250 mid-cap index also continued its run, hitting a new all- time high of 7,358.4, up 37.5 yesterday. It was led by Countrywide, the estate agents, whose own shares were also at a record level, up 19p to 353p. A transatlantic rift has opened up in attitudes to this stock, and, indeed, to the UK housing market. While London-based doomsters are predicting a crash that will shatter Countrywide's profits, US hedge funds have been bidding the shares higher. What appears to have started happening this week is that the UK funds that have been short-selling Countrywide shares have been forced to capitulate, buying back the stock and pushing Countrywide even higher, to the amusement and the financial benefit of their US rivals.

There was also institutional buying of housebuilding shares, which have been priced for armageddon for the last 15 years. If there is no housing crash, they could get a significant re-rating, according to buyers yesterday. McCarthy & Stone, the retirement homes builder, led the sector, up 26p at 661p. And there were big gains for Wilson Bowden (42p to 1,260p), Crest Nicholson (12.75p to 385p), George Wimpey (15p to 458.5p), Persimmon (25p to 790p), Bovis Homes (15p to 685p) and little Ben Bailey (22p to 477p), which is rumoured to be lining up forecast-busting results.

BTG was up 8.5p at 101p on talk it would find a partner to fund development of its stalled treatment for varicose veins. Oxford BioMedica bounced 2p to 21.5p after The Independent reported it would pursue further expressions of interest after merger talks with a mystery suitor failed over the weekend. And Advanced Medical Solutions was up a ha'penny at 10.63p after its silver- based wound dressing received approval to launch in Europe. The stock is up by almost a quarter in a month after Gartmore, a long-time seller, finally got out of the stock.

Adastra Minerals rose 16p to 91p as it took a group of bankers to see its Kolwezi project in the Democratic Republic of Congo ahead of the Indaba mining conference in Cape Town.

Recently-floated shell Black Raven Properties was up a further 0.5p to 17.25p as it promises to bring together a household name architect and a respected construction firm for a big new development project.

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