Market Report: Home Retail in demand as takeover talk returns

The takeover spotlight returned to Home Retail last night, prompting a late surge for the Argos owner after market gossips reheated chatter it could be about to receive a bid.

Regularly discussed as a potential target – with Walmart among the names it has been linked with in recent months – yesterday's renewed talk saw the retailer shoot up by 8.3p to 174.7p on the mid-tier index, as rumour-mongers said more than one unnamed company had it in their sights.

According to the vague tale, the possible aggressors could make a move following last Thursday's interim management statement in which Home Retail said Argos' like-for-like sales had fallen by nearly 10 per cent during the first quarter. As a result it lost more than 18 per cent in two sessions, and although traders said they would not rule a bid out, one said yesterday's move was more of a relief rally.

Also helping the takeover chatter was Morgan Stanley, which kept its "equal-weight" advice despite cutting its profit forecast for Home Retail by 17 per cent, saying that "merger and acquisition risk is growing".

Overall, the FTSE 100 continued its recovery from last Friday's plummet, powering up 29.67 points to 5,803.13 after positive growth signals from China. This gave the miners a push, lifting Antofagasta by 42p to 1,257p while Kazakhmys increased by 47p to 1,282p.

Eurasian Natural Resources missed out, however, slipping back 15p to 761.5p after cold water was poured on the bid hopes that helped it to advance on Monday. Reports claiming it could be the subject of an approach from Glencore were quashed by the commodity trader, which said it was not "actively" considering such a move.

Glencore ended up finishing in last place, retreating 23.4p to 500p, despite announcing its operating profit had risen by 45 per cent during the first quarter in its first update since floating last month. Also announcing figures was Tesco, and the UK's biggest supermarket edged forwards just 0.1p to 407.3p after it said its sales on these shores had crept down by 0.1 per cent.

Meanwhile, 3i was bumped up by 5.2p to 273.9p after disposing of its 70 per cent stake in the manufacturer Alo Intressenter for about £136m, while Oriel Securities said the private-equity group was still "vulnerable to a bid if it continues to trade on a substantial discount".

It may not be showing any of the events, but claims ITV will still get a boost from next year's Olympic Games helped the broadcaster to take the gold medal on the blue-chip index. The group, which had lost more than 8 per cent in nine consecutive days on the slide, was 2.85p higher at 68.2p after Liberum Capital said investors were "factoring in more than the worst case scenario".

Calling its recent weakness "overdone", the broker said ITV was in "an excellent position" for 2012, adding that "while ITV1 will not show the Olympics, advertisers are likely to want to have their brand associated with the Olympics". Reiterating their "buy" recommendation, Liberum's analysts also suggested ITV could introduce a share-buyback scheme worth more than £500m.

On the FTSE 250, Avis Europe was driven up by nearly 60 per cent, adding 114.1p to 310.7p, after agreeing to reunite with Avis Budget in a deal which values the car-hire group at 315p-a-share, 25 years since being spun-off .

Northumbrian Water was once again the subject of takeover chatter, but although some continued to talk up vague speculation it could soon receive an approach, others speculated that the Ontario Teachers Pension Fund was no longer likely to make a move. The Canadian fund is the utility's largest shareholder and there has been persistent chatter it could submit an offer, but yesterday market voices said Northumbrian's recent strength had made it too expensive, and it eased back 8.8p to 378.2p.

Rentokil Initial advanced by 0.95p to 95.9p after the multi-tasking group announced it was hiring two new faces for its City Link unit, David Smith and Robert Peto, who will be the struggling unit's managing director and finance director respectively.

The company was also helped by RBC Capital Markets reiterating its "outperform" recommendation, with the broker saying Rentokil was "set for a re-rating over the next six months, on the market's strengthening belief in the recovery potential".

Citigroup's enthusiasm for failed to prevent the online gaming group shedding 2.5p to finish at 143.6p, despite the broker changing its rating to "buy". The company has been hit recently by fears over proposed gambling regulations in Germany, but Citi's analyst Simon Whittington said the market was "increasingly pricing in a full withdrawal" from the country, a situation which he believes "remains relatively unlikely".

Down among the small-cap groups, Southern Cross surged by more than 47 per cent, pushing up 2.9p to 9.17p, after the troubled care provider's landlords approved its rescue plan late on Monday.

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