Market Report: Bid talk bubbles up around Mitchells & Butlers

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The Independent Online

As blood sprayed across the markets, flowing from the flanks of the flailing retailers, traders not running for cover had to be content with reheating a few classic bid stories.

Talk that Punch Taverns was set to launch a 500p-per-share offer for Mitchells & Butlers, both recently relegated from the FTSE 100, emerged in the morning. The chat was enough to send Mitchells up 13.5p, but it retreated with the plausibility of the speculation, and closed down 7p at 390p. Punch weakened 25.5p to 632.5p.

One trader said: "This seems pretty unlikely. Mitchells would probably reject at that price anyway."

Another hoary old chestnut re-emerged in the form of Forth Ports. The stock has been talked up as a target for an eternity, with Babcock & Brown apparently sniffing round recently. But traders were piling in again yesterday amid yet more talk.

Most in the sector believe that, as the last independent UK ports operator, it is a question of "when" rather than "if", but then they've been saying that for ages. Anyway, it rose 5.9 per cent to 2,011p. A sales trader said: "If something does happen soon, it will probably be a stake changing hands."

This proved all background noise as the FTSE 100 gave up 83.8 points to close at 6,272.7, with the bloodletting caused by the retailers.

The dominant stock was Marks & Spencer. Shares dived almost 20 per cent, wiping out most of the gains since Philip Green offered 400p per share all those years ago. The slump came after the chain reported a 2.2 per cent drop in Christmas sales, its worst quarterly trading performance for two years. Words like "shocking" and "disastrous" were being bandied about in reaction yesterday morning. The stock closed down 18.7 per cent at 409.25p, although in a show of strength, Stuart Rose and Lord Burns both bought into the fall.

Oriel Securities said M&S's profits warning would destabilise its peers. It said: "We expect invest-ors to react poorly to the news across the sector and cut DSG International and Kingfisher to 'sell', with Home Retail, Kesa Electricals and Next cut back to 'reduce'." All took a pasting on the day.

BP was another to fall amid some confusion in the morning. The stock fell 32p on talk it was offering lower guidance on market forecasts, swiftly followed by a Merrill Lynch report that cut its earnings per share by 25 per cent. The stock rallied slightly to close down 23p at 610.5p, although BP added later that it had said nothing surprising in its recent analysts discussions.

There were few heavy gains on the blue chips, with the majority driven by bullish broker reports. The pharma giants proved resilient again, still buoyed by the previous day's talk that Fidelity had been buying. Astra-Zeneca was the healthiest, up 3 per cent to 2,301p. Credit Suisse also released a note repeating its "market weight" recommendation on healthcare. But the broker cautioned that "the sector's fortunes are finely balanced for the moment, pending more macro clarity".

While big pharma did much heavy lifting, one big miner weighed in with support. Lonmin finished the day top of the index, 3.6 per cent higher at 3,380.

At the top of the second tier was Imperial Energy, and once again the gains were driven by a broker note. The rise of 12.3 per cent to 1,755p came after UBS upped its price target to 1,900p on the back of new prospects and said it is one of its two sector picks.

Talk of movement in the takeover shenanigans at Close Brothers helped it survive the financial sector falls. It posted a 1.0 per cent bump to 984p on the rumour that Cenkos' consortium was set to boost its bid to £1.5bn.

The second tier fallers were littered with retailers, none more so than Restaurant Group, the owner of Garfunkel's and Frankie & Benny's. It suffered a kitchen nightmare worthy of Gordon Ramsay, falling more than 30 per cent to 119p. The brokers thought that the stock had been oversold and saw a buying opportunity.

Second worst on the second string was Debenhams, 11.2 per cent weaker at 63.75p.

One of the top risers on the small caps was Chromogenex, a group that makes cosmetic and medical laser systems. It was sitting pretty, up 20 per cent to 5.25p, after boosting sales and profitability for the second half of the year. It has also appointed Allan Branch, previously head of Lighthouse Technologies, as its new chief executive.

Also fired up was the tiddler Spark Ventures, which rose 18 per cent to 0.5p. This followed news of talks with a potential investor willing to put in up to £20m "priced at a significant premium to the share price".

Bad news for Sports Café. The group fell on talk of bad news in the pipeline, which duly emerged 10 minutes before the market closed. It said it was in talks with its bankers over extending facilities, sending the shares down 55 per cent to 3.5p. Expect it to take a further hit today.