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Market Report: Whitbread takes top spot on Premier merger talk

Rumours that Premier Inn may yet merge with rival Travelodge helped take Whitbread to first place on the FTSE 100 leader board yesterday.

Market speculation in March had suggested Whitbread, the hospitality group which owns the Premier Inn budget hotel chain, was close to acquiring the Dubai International Capital-owned Travelodge, a rival hotel chain. At the time, Whitbread said that "whilst there were preliminary conversations between the parties, these discussions have now ended".

Last night's rumours suggested the two parties had resumed talks, reigniting investor's hopes for a deal. The chatter helped Whitbread to put on 27p to 1,145p.

Elsewhere, British Airways was depressed by a new note from Morgan Stanley, whose analysts revised their rating for the stock to "under-weight" from "equal-weight", slashing their target price to 120p from 245p.

"We see further near-term risk to earnings from operational difficulties at T5 [Terminal 5 at Heathrow Airport], slowing premium travel, increased competition from Open Skies on the transatlantic routes and possible labour disruptions," the broker said. "Although [BA] states that long-haul premium traffic is holding up well, we are concerned about the longer-term impact of job losses in the banking industry, with around 30,000 jobs already cut since August and 10,000-20,000 jobs forecast to be cut in 2008."

The negative assessment took British Airways down 8p to 215.5p, to fourth place on the FTSE 100 loser board.

Overall, the FTSE 100 continued to slide, losing 63.9, or 1.1 per cent, to 5,831.6. The London benchmark was weak all morning, dragged down by Friday's losses on Wall Street and other world markets. An unhappy update from the Dutch conglomerate Royal Phillips Electronics and from the US bank Wachovia also dampened investor sentiment.

The FTSE 250 shed 85.9, or 0.9 per cent, to 9,845.5.

The banking sector was weak after weekend news reports suggested Bradford & Bingley may issue new shares to raise capital. While the FTSE 250-listed lender denied the rumours, weak sentiment kept its stock in the red at 165.5p, down 1.75p.

Other banks were also off-colour, including Alliance & Leicester, down 8.75p at 480.25p, Barclays, off 9.25p at 443.75p, Lloyds TSB, which was 12p weaker at 421p, and HSBC, which fell 14.5p to 840p. HBOS bucked the trend, gaining 6p to 513p as bargain-hunters bought the stock.

Miners were weak as metals prices eased off highs yesterday. Xstrata slumped 125p to 3,731p, while Anglo American shed 102p to 3,221p. Rio Tinto was down 78p at 5,822p and Kazakhmys fell 43p to 1,655p.

Vedanta Resources lost 15p to 2,350p. Retaining its underweight rating for the stock, Lehman Brothers said that despite "some positives", good news was already priced in to the shares. "On our estimates, Vedanta is trading at a significant premium to its peers and its own sum of the parts valuation," the broker said.

On the FTSE 100, Friends Provident lost 10.8 per cent, or 14.1p, to 116.5p after JC flowers, the American private equity firm which submitted a 150p-per-share takeover proposal to the company earlier in the month, said it did not intend to increase its offer. Flowers added that if Friends Provident failed to enter into talks by the end of this week, it intended to withdraw its proposal.

On the FTSE 250, Great Portland Estates, the central London property investment and development company, soared to an intra-day high of 498.25p on the back of stake-building rumours. The speculation was borne of a report in the Israeli financial press that Delek Group, a subsidiary of the Tel Aviv-listed Delek Real Estate Limited, was in talks to buy a controlling stake in the one of the five largest income-producing property companies in the UK.

According to the Globes newspaper website, the target's largest shareholder owns only 9 per cent of the company, leading traders to focus on Great Portland Estates, whose largest shareholder has an interest of 8.94 per cent. By the close, Great Portland had eased to 475.75p, up 3.75p.

The engineering group Charter was down 16.5p at 842.5p after Goldman Sachs removed the stock from its "conviction buy" list.

"Following a period of strong performance, Charter's share price has appreciated to within 10 per cent of our target price," the broker said. "Consequently, although we make no change to our positive fundamental view of the stock, we are removing Charter from our 'conviction buy' list." Goldman retained its "buy" rating on the stock.

On AIM, Nautical Petroleum was up 0.57p at 9.07p after 5 per cent of its shares were sold at a 47 per cent premium to their closing price on Friday. International Energy Group sold the stake to Korea's Shincheon for £7.926m, or 12.5p per share.