SHARES AND MARKET REPORT: Traders check out of Tesco on acquisition fears

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The Independent Online
RUMOURS THAT Tesco may be about to embark a major acquisition spree in the Far East left shares in the supermarket giant as the worst performers in the FTSE 100 yesterday. Tesco dropped 5p to 311.25p as dealing rooms were awash with talk that Sir Terry Leahy, the group's chief executive, had recently made a trip to the region to hunt possible targets.

Sector specialists said they would not be surprised if Tesco made a meaningful expansion into the Far East. The food retailer began building its international operations in 1995 to compensate for not being allowed to make any significant acquisitions in the UK, where it controls 29 per cent of the grocery market. So far, South Korea and Thailand are the group's most important markets in the Far East. It operates its stores in Korea via a joint venture with a local conglomerate, Samsung Corp.

Meanwhile, the game of trying to back the next takeover bid was again the trading strategy employed by most City punters. Somerfield, up 6p to 160p, and Exel, 26p higher at 850p, were at the top of most players' buy lists although their ardour for both stocks waned as the day wore on. Rumours of a bid for Exel are by no means new but the latest round of speculation suggests that the logistics group will finally announce an approach next week.

As for Somerfield, the supermarkets group is merely the latest retail stock to be tipped as likely to be bought. After news that Apax Partners is considering buying Woolworths, retailers have once again become favourites among punters. Some suggested yesterday that Somerfield is being stalked by a private equity player, while others said that the Icelandic retailer Baugur is likely to be running the slide rule over the group now that it has concluded its acquisition of Big Food Group.

In the ports sector, which has been set alight by the takeover battle for Mersey Docks, Forth Ports added 35p to 1,455p on hopes that it will be the next player to be swallowed in the ongoing consolidation of the industry. Forth's share price rise stood out in the sector as rivals struggled to register gains. PD Ports added just 0.5p to 107.5p, while P&O sank 1.25p to 311.5p and AB Ports ticked 1p higher to 495p.

Blue chips were once again away at the races. The FTSE 100 rose 33.2 points to 4,941.5, despite weaker-than-expected US employment data. The FTSE 250 rose 28.9 points to 7,295.4. Corus added 2p to 57.5p on the back of a bullish sector note from Morgan Stanley in which it argued that steel demand is likely to remain strong during 2005. Bid speculation also continued to surround the Anglo-Dutch steel group despite the fact that the company has denied the rumours.

Wincanton dropped 12.5p to 283.5p after the group's PGN joint venture lost one of its biggest customers three years before the deal was due to expire. Following the news, analysts rushed to downgrade their earnings forecasts. Investec Securities now expects Wincanton to deliver profits of pounds 33m in the current year, down from the pounds 38m it was expecting before the setback.

Dicom rose 5p to 915p ahead of its interim results next week. Williams de Broe cut its stance on the software group to "hold" from "buy" and argued that Dicom's share price is now very much up with events. Macfarlane added 3p to 37p after selling pounds 4.6m worth of property. Vanco jumped 13.5p to 329p after the telecoms network provider unveiled a series of contract wins worth pounds 32m.

After a disastrous week, Whitehead Mann rallied 2.5p to 58.5p as its chairman, Sir Colin Southgate, disclosed the purchase of 50,000 shares at 47.5p. Meanwhile, Chris Merry, the chief executive, acquired a more modest 10,000 at the same price. Since Monday, the group has lost half its stock market value after issuing yet another profits warning.

But analysts warn that the company is unlikely to be able to stage a swift recovery. As a result of Wednesday's warning on profits, Numis Securities was forced to slashed its earnings forecasts on the group for the third time since October, and the broker said it fears further reductions may be required. Numis Securities believes investors should sell the stock, as does Altium Securities.

Finally, Silvermines Media rose 3p to 10.5p after the cash shell announced the purchase of Zhibek Resources in a deal that values the oil and gas explorer, based in the Kyrgyz Republic, at pounds 3m. Once the transaction is complete, the company will change its name to Cambrian Oil & Gas. Zhibek already has 70 wells producing oil and it hopes to increase its output by using the latest water injection techniques.