Market Report: Reed rises on hopes of private equity B2B deal

Credit Suisse cheered up investors in Reed Elsevier yesterday after saying that, contrary to reports of "cooling interest... private equity is intently interested" in buying the company's business-to-business arm.

The FTSE 100-listed publisher announced its intention to sell its Reed Business Information division alongside its preliminary results. While recent market talk has suggested that the private equity groups which were considered the most likely buyers of the business have lost interest, Credit Suisse believes that the prospects for divestment have been painted in "an unduly negative light".

"Private equity are known to have considerable tangible interest in B2B," the broker said. "Private equity were behind five of the last seven major B2B proposed transactions in the last two years."

The broker cited seven private equity houses, including Apax Partners, 3i, Permira, Cinven, Candover, CVC and Providence Equity Partners, who are reportedly looking at acquiring the business. Credit Suisse also noted that, contrary to reports of it losing interest, Apax has hired Deutsche Bank to advise it on Reed Business Information.

Hopes of a deal helped Reed gain 4p to 654.5p.

Overall, the FTSE 100 remained weak, shedding 18.8, or 0.3 per cent, to 5,965.1. The Bank of England's decision to trim its base lending rate from 5.25 per cent to 5 per cent failed to lift the London benchmark, which remained depressed as rumours about further writedowns at Merrill Lynch, the American investment bank, circulated in the market. Sentiment was also hurt by a new research note from ING. Its analysts said they saw "growing downside risks" to forecasts that the UK economy will grow by 1.5 per cent this year and the next.

The FTSE 250 fell 58.8, or 0.6 per cent, to 10,013.

The economic worries and writedown rumours weighed on the banking sector. Alliance & Leicester slumped to the bottom of the FTSE 100, down 30.5p at 495.5p. HBOS was weaker by 10p at 516.5p, Barclays lost 7.25p to 463.25p, Lloyds TSB fell by 8p to 446.25p and Royal Bank of Scotland was down 7p at 362.25p.

Elsewhere, concerns about weaker demand for commodities as global economic conditions worsen hurt the mining sector. BHP Billiton, which said it was not aware of Chinese plans to pick up a stake in its business, was down 46p at 1,758p. Xstrata, which was downgraded to "hold" from "buy" at ABN Amro, lost 32p to 3,940p. ENRC, on the other hand, gained 74p to 1,180p. ABN Amro said that the Kazakh miner remained one of its top three European mining picks for the year.

Also on the FTSE 100, British Airways gained 5p to 227.25p as news emerged that the airline was in compensation talks with Boeing. The talks concern BA's order for 24 787 Dreamliner airplanes and follow Boeing's recent announcement that delivery of the model will be delayed by a further six months.

On the FTSE 250, Manitowoc's 260p-per-share offer for Enodis, which soared by a spectacular 51.82 per cent, or 78.5p, to 230p, refocused investors on other mid-size stocks which have been the subject of recent bid speculation.

Killik Capital summed up the mood. "The fact that there is still takeover interest in the mid-cap engineering sector, and the financial ability to undertake deals, will benefit other stocks in the space, such as Bodycote, IMI and FKI, the latter of which is already involved in a bid," the broker said.

The expectation took FKI, whose books are being evaluated by rival Melrose, up by 1.5p to 73.25p. IMI, which is rumoured to be in the sights of the American engineering giant Honeywell, gained 16p to 468.75p. Bodycote was heavier by 7.75p at 203.75p.

More bid talk was evident around Expro International, the oil services company which rose by 21p to 1,246p. Market speculation suggested that Candover Partners, the private equity firm which is widely suspected to be the source of an earlier preliminary approach, was close to making a formal offer for the company. The chatter bore a new price for the prospective bid. Candover, it was said, may offer up to 1,450p per share. Earlier rumours had suggested a lower offer of around 1,350p per share.

Among the small caps, Photo-Me cancelled its interim dividend of 1p per share, totalling £3.6m for the year to 30 April. The announcement followed the company's decision to reduce substantially the expected useful lives of its photo booths and some other vending equipment. Photo-Me was flat at 16.25p.

On AIM, Anglo Asian Mining added 31.71 per cent or 3.25p to 13.5p after the market heard that the International Bank of Azerbaijan had granted the company a term loan of $20m (£10.1m) for its Gedabek project in west Azerbaijan.