Market Report: Morgan Stanley rekindles DSG bid speculation

DSG International, the company behind the PC World retail chain, was firm yesterday after market rumours mooted the possibility of a bid from Best Buy, the American retail giant that recently entered in to a joint venture with Carphone Warehouse.

Traders said the speculation, which first surfaced before Best Buy announced the deal with Carphone, was reignited by a note from Morgan Stanley.

"We think that the new [joint venture between Best Buy and Carphone] will need to make an acquisition if it is to achieve its ambitions, and that [DSG] is a plausible target," the broker said.

"If a bid is forthcoming, we believe that it is likely to happen before the end of this calendar year."

Morgan Stanley also put the stock on its "buy" list for the first time, citing, beside possible bid activity, the company's turnaround potential and the possibility of a general rebound in depressed retail shares.

DSG climbed more than 3 per cent, or 1.75p, to 58.25p.

Elsewhere, bid speculation was evident around Minerva, the property investment and development company. Earlier in the month, Limitless, a division of the Dubai World sovereign wealth fund, revealed its hand and said it was in the "very preliminary stages of considering its options" in respect of the company.

Yesterday, market rumours suggested the Middle Eastern group had decided to make a formal proposal and may offer as much as 160p per share. Minerva rose 8p to 101p.

The FTSE 100 lost 14.6 to 6,053.5 as miners and oil companies fell, owing to weak commodities prices. The FTSE 250 shed 48.9 to 10,049.3.

British Airways drew strength from a temporary lapse in the recent oil price rally and fared the best on the London benchmark, gaining more than 8 per cent or 17.5p to 232.5p.

Fortunes were also reversed in the banking sector, where leading stocks recovered after a grim session on Thursday. Alliance & Leicester climbed 5p to 425.25p and Lloyds TSB added 7p to 384p.

However, HBOS, which was down 14.25p at 400p, Royal Bank of Scotland, which lost 3.25p to 228.5p, and the FTSE 250-listed Bradford & Bingley, which lost 2.25p to 88.25p, remained weak, owing to continuing concern regarding the take-up of their rights issues.

Among oil companies, Tullow Oil was down 32p at 890p, at second place on the FTSE 100 loser board.

Mining companies were also weak and Eurasian Natural Resources Corporation lost 22p to 1,459p.

Vedanta Resources was down 27p at 2,504p, BHP Billiton lost 46p to 1,914p and Xstrata was 51p weaker at 3,989p.

In addition to the weakness in commodities prices, BG, which lost 28p to 1,266p, was hit by news from Australia: Origin Energy rejected the company's A$13.6bn (£6.6bn) takeover bid.

On the FTSE 250, Taylor Wimpey continued to slide, despite some positive broker comment. Goldman Sachs took the stock off its "sell" list and moved it to "neutral", owing to the recent strong underperformance. "We maintain a negative view on Taylor Wimpey's high gearing, weak operating margins, and susceptibility to an accelerating downturn in UK housing as tighter mortgage credit contributes to weaker demand and pricing. However, we believe this is largely reflected in its shares," the broker said.

Goldman's comments were echoed by Panmure Gordon, whose analysts acknowledged the concerns surrounding the business, but said the "share price fall is overdone". Panmure moved the stock to "buy" from "hold". Taylor Wimpey was down 0.5p at 85p.

The online gaming company PartyGaming claimed first place on the mid-cap index, gaining more than 10 per cent or 26.25p to 286.5p, following speculation about a settlement with the US Department of Justice.

According to the rumours, the company had settled charges brought under US betting regulations and was now free from the possibility of future fines. The news soon sparked talk that, without the risk of further liabilities, PartyGaming may become a bid target.

The equipment rental group Ashtead touched an intra-day high of 82p amid speculation that the company had rejected an 110p- per-share bid from CCMP Capital Advisors, the American private-equity firm. By the end of play, Ashtead had relaxed to 76.25p, up 1.25p.

On AIM, OPG Power Ventures, an Indian power company, made its market debut yesterday after raising £65.1m via a placing of 108.42 million shares at 60p each.

OPG said the money will be used to finance the building of four power stations, which will increase its power output from 19 MW to 450MW in less than two and a half years. By the close, OPG had powered ahead 12p to 72p.