Jarvis surges amid rumours of private equity bid

Private equity buyers have been mulling a move on Jarvis, the stricken rail contractor and construction group, according to the gossip circulating City dealing rooms yesterday.

Private equity buyers have been mulling a move on Jarvis, the stricken rail contractor and construction group, according to the gossip circulating City dealing rooms yesterday.

The extraordinary claim comes after sentiment towards the bombed-out shares dramatically turned after a less-than-damning television report on the company last week. Dealers said Jarvis was in effect priced for collapse, so the suggestion that all or part of the group could be taken over by a financial buyer added to the stock's surge. It was up 11 per cent, 18p, closing at 181.5p - some 45 per cent higher than the nadir.

Analysts reckon it would be a brave competitor who tried to swallow Jarvis, although Balfour Beatty, down 0.25p to 250.25p, was being mooted. Jarvis is still struggling to explain the Potters Bar train crash in May 2002, where a faulty rail it was in charge of maintaining caused the death of seven passengers. The company has also suffered difficulties in its accommodation business, and had acres of bad press for other areas of its business and accounting practices.

That said, a financial buyer might fancy an opportunistic raid on some of the Jarvis assets, and more complex deals involving the ring-fencing of liabilities cannot be ruled out, dealers speculated yesterday.

There was frenetic trading, too, in mmO ₂ shares, as investors heard that a second bid from the Dutch phone group, Royal KPN, is due any day. Last month, the UK group rejected a some-cash-and-lots-of-shares approach from KPN, pitched at about 110p. Speculators drove the stock to 117.75p at the peak yesterday, and the talk was that a new approach values the shares at between 125p and 145p. Speculators were additionally hoping that if KPN is not back at the table, it will have tempted Hutchison, Orange or an unnamed US phone company to put in its own bid.

The stock market code for mmO ₂ shares is OOM, and the joke yesterday was that it is about to be changed to ZOOM. Or at least, that was the joke until the last half-hour of the day, when the shares went back to where they started, ending just 0.75p to the good at 112p.

The bulk of the market remained relatively quiet, and with no clear lead from Wall Street, the FTSE 100 closed just 6.7 points better at 4,553.8.

With very little direction to the market, analysts at the City's giant investment houses were in the driving seat for many blue-chip shares yesterday. GUS, the retail conglomerate which owns Argos and Homebase, was being punted by Merrill Lynch. Up 22.5p to 753p, it was the FTSE 100's best performance. The broker argued that GUS is being punished unfairly for a modest slowdown in profit growth this year, when management's historical record is so strong.

There was also strong buying of British Airways thanks to a positive take on the company's cost-cutting strategy from Dresdner Kleinwort Wasserstein. The broker reckons BA shares are worth 380p, and they were up 4.25p to 332.5p yesterday. Cable & Wireless shares went in the opposite direction, closing 2.75p lower at 134.5p amid rumours that the company's management failed to impress the City's bluest of blue-blooded brokers at a meeting.

GlaxoSmithKline shares drooped 7p to 1,118p on worries that the drug maker's new impotence pill, Levitra, is losing the marketing battle to Cialis, the latest launch in the market created by Viagra in the 1990s. The record company EMI was a good market, up 14.75p to 278.25p on hopes it may today regain its FTSE 100 place.

Antofagasta, the Chilean railways company whose reinvention as a copper miner has turned it into a £2.3bn blue-chip stock, was itself enjoying a positive first day in the FTSE 100. Its shares closed up 2p, at 1,172p, even though the copper price continued to retreat from its recent eight-year high. Another commodity play, the oil explorer Paladin Resources, has been promoted to mid-cap status, and closed its first day in the FTSE 250 up 4.5p at 110p. It was the takeover of Safeway by William Morrison Supermarkets which prompted FTSE's mini-reshuffle, and Morrison shares were unmoved at 249p.

SSL International slipped 7p to 316p. The maker of Durex condoms is trying to sell its hospital supplies businesses, which includes a surgical gloves manufacturer, but the transaction is already more than two months past the company's self-imposed deadline. Investors are worrying that the difficulty of legally separating the businesses for sale has thrown up some last-minute problems, and that any eventual proceeds could prove disappointing.

There were echoes of the private investor boom of 2000 in the flotation of Reflexion Cosmetics. This is a cash shell chaired by Nigel Robertson, once the chief executive of Scoot.com, the directories business, formed to acquire cosmetics brands. Its flotation at 13p yesterday was followed by aggressive buy orders that sent the stock to 24.5p, valuing the group at £2.2m.