Market Report: Cadbury bid keeps the FTSE 100 sweet

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There was only one story driving the market yesterday, and it was the return of mergers and acquisitions to the FTSE 100. The unexpected bid had investors licking their lips, and drove the index to new year highs, up 1.68 per cent at 4,933.1 points.

Cadbury was the target, with US rival Kraft serenading it with a £10.2bn bid that sent Cadbury's shares up by more than 40 per cent – well past the unsolicited 745p-per-share offer.

Despite being a 31 per cent premium to Friday's close, the Dairy Milk maker rejected Kraft's bid as fundamentally undervaluing the group. The market was fairly sure this would not be the end of the story and the shares soared through the 800p mark on hopes that Kraft would come back in, or even on potential counter bids. The shares closed at up 37.9 per cent at 783p, certainly a sweet day for investors.

This buoyed the top tier, especially with no direction from the US, which was closed for Labour Day. David Jones, the chief market strategist at IG Index, said: "The last 18 months have unsurprisingly been a bit scarce for M&A activity – some today have seen the Cadbury's story as further confirmation that economies continue to be on an upward slant with a more optimistic view than we have had for some time."

There were just four blue chips in the red at the close. Worst on the day was Thomson Reuters as it celebrated its imminent delisting with the wooden spoon, down 1.68 per cent at 1,870p.

Elsewhere, Whitbread's 18 per cent bump to 1,211p was stellar, eclipsed only by Cadbury. The hotels group soared despite a 2.6 per cent fall in first-half sales, after it predicted full-year profits would be at the top end of market expectations this year. Whitbread expects growth from Premier Inns in the second half, and pointed to strong performances at its Beefeater, Fayre and Costa Coffee chains. The results were backed by KBC Peel Hunt, which said investors were "now looking beyond" the tough trading conditions.

Another riser off strong results was Associated British Foods, where sales were driven by discount clothingbrand Primark. Sales at stores open at least a year soared 9 per cent as it ate the lunch of the mid-market including Marks & Spencer and Next. AB Foods rose 4.13 per cent to 845.5p.

The rumour that will not go away is Lonmin. After a potential takeover bid by Xstrata was reheated by RBC analysts in a note last week, the story has snowballed. One of the Sundays said Xstrata, which has a 24.9 per cent stake in its rival, had asked its bankers to run the sliderule over a £3bn bid, sending it up 5.89 per cent at 1,671p. Lloyds Banking Group had a good day, rising 4.45 per cent to 106.3p as Dutch broker ING lifted its price target from 70p to 100p in the morning.

Mike Ashley's Newcastle FC are getting used to life in the second tier of English football, but at least they are topping the table. Yesterday, his other volatile performer, Sports Direct International, charged up to the market's second string for the second day in a row. The group, which sells sporting replica kits and trainers, closed up 11.8 per cent at 114p on support from the brokers. Numis reckons the World Cup next June will give it a welcome fillip, especially with England set to qualify, and upgraded the stock to a "buy" from a "hold". Kate Heseltine of Seymour Pierce said: "After a tepid phase Sports Direct has very much regained its strategic focus."

The construction company Kier Group was going great guns yesterday after it won a contract worth £600m. Investors piled in, sending the shares up 8.1 per cent to 1,200p. It announced to the market yesterday that the contract was with North Tyneside Council to repair and maintain its social housing for 10 years.

The engineering sector was in focus as Icap initiated coverage with a "buy" rating. Tomkins was the most impressive riser on the FTSE 250 yesterday, up 3.7 per cent to 181.6p. "Cyclicals have rallied hard in 2009 and the temptations is clearly to take short-term profits." Analysts at the broker advised against the move saying: "Earnings momentum in our view keeps them outperforming".

Yell Group continued its storming rise, which has seen the share price double since mid July. The rise and rise of the directories business has left onlookers scratching their heads, although some believe its future is now more secure. It closed up 11.3 per cent at 53.5p. Two beleaguered newspaper groups also did well, Johnston Press rising 15.5 per cent to 41p and Trinity Mirror up 14.6 per cent to 180.25p. Traders said the market was more comfortable with their balance sheets in the wake of a bit of repair work in recent months and severe overselling. There was also support for David Montgomerie's Mecom Group, which was up 10 per cent to 118p as the sector bounced.

On the Alternative Investment Market, Lupus Capital failed to have investors howling at the moon despite pretax profits falling 48 per cent and the group scrapping its dividend. Industrial buyout group Lupus, named after the Latin for wolf rather than the chronic inflammatory disease one imagines, actually soared, up 16 per cent at 25p at the end of the day.