Market Report: Tui Travel enjoys lift over takeover tittle-tattle

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There were plenty of potential takeover targets for investors to get excited about yesterday, including Tui Travel which flew up the blue-chip index's leaderboard on renewed hopes that its parent company could move to purchase the shares in the group it does not already hold.

The tour operator, which rose 5.4p to 228.5p, has frequently been the subject of speculation that Tui AG could attempt to reintegrate it using funds from a float of the Hapag-Lloyd shipping group, which it owns almost half of. Yet, in the wake of the recent volatility in the markets, Hapag-Lloyd announced last month that it was putting off a decision on whether it would go ahead with an initial public offering (IPO).

Yesterday, however, Tui AG said it was talking to a number of investors over potentially selling a stake in the container line, while confirming an IPO was still a possibility. The announcement came following reports linking both the Chinese group HNA and Oman's sovereign wealth fund Onyx with Hapag-Lloyd, although Tui AG refused to comment on the identity of the companies it is currently in discussions with.

"A sale to a strategic investor – if one exists – could be a preferable option to an IPO [for Tui AG]," said analysts from Royal Bank of Scotland, who added that "monetising Hapag-Lloyd is a key step to freeing Tui AG to pursue its leisure interests, and this puts it one step closer to a potential offer for the remaining free float of Tui Travel."

However, traders urged caution, with one saying that although the idea a sale of its stake in Hapag-Lloyd would result in a bid for Tui Travel is "an easy assumption to make", Tui AG "would not necessarily want to use the money straight away".

Takeover speculation was also in action on the mid-tier index, where reheated chatter helped Soco International touch 413p during trading. Not for the first time, market gossips said the group could be in line for a potential bid from an unnamed Chinese group, with the vague talk mentioning a price of 550p-a-share, and the oil and gas explorer eventually finished 5.5p ahead at 400p.

Elsewhere Home Retail peaked at 218.7p before falling back to 208.1p at the bell, an increase of 3.5p. Vague bid speculation has surrounded the Argos-owner in recent weeks, and the idea of it being a possible target was revived again in the wake of Monday's news that the US private equity group Madison Dearborn Capital Partners has built up a 4.25 per cent stake in the company.

Overall, the FTSE 100 slipped back 9.92 points to 6,007.06, with the mining sector knocked by China's decision to raise its lending and deposit rates. The banks were also in the red, including Lloyds Banking Group which slid 0.7p to 59.62p, as Moody's downgraded Portugal's rating to Baa1 from A3.

With Nomura warning that it faces "more difficult newsflow" ahead, including the publication of India's new telecom policy, Vodafone declined 2.7p to 176.15p. The broker did keep its "buy" advice, saying the group's "12-month investment case remains sound", but it still noted that "there is scope for the stock to fall back towards 170p in the near term".

Vedanta Resources' proposed acquisition of Cairn India was given a boost yesterday after Vedanta's chairman said he expected the deal to be approved by the Indian government "within a few days". The group ticked up 106p to 2,518p to take pole position on the blue-chip index while Cairn Energy, which has agreed to sell as much as 51 per cent of its Indian unit to Vedanta, surged forwards 7.5p to 469.7p.

Also high up the leaderboard was Resolution, advancing 9.4p to 303.8p after the insurer was helped by Citigroup reiterating its "buy" recommendation. "Resolution has set itself on the path to creating demonstrable value by growing cash and capital through leveraging scale and driving capital synergies," said analyst Raghu Hariharan, who added that it could return around 10 per cent of its market capitalisation to shareholders.

Meanwhile its mid-tier peer, Lancashire Holdings, climbed 3p to 622p, as JP Morgan Cazenove kept its "overweight" rating, saying the group's business model would allow it "to smoothly react to market opportunities that may arise following the high level of natural catastrophe-related losses the industry suffered [since the start of the year]".

Down among the small-cap companies, it was another tough day for HMV, which announced its third profit warning of 2011. It was not all bad news – the high-street retailer revealed crucial financial tests by its banks are being delayed until the start of July, but it still plummeted 3p to 12.25p.

Elsewhere, Quintain Estates & Development was lifted following the re-emergence of vague speculation it could be in line for a takeover approach, and the property developer, which is currently working on the Wembley City project by the national football stadium, was bumped up 2.5p to 46.25p.