Market Report: ARM falters on takeover talk that lacks legs

The microchip stock ARM Holdings was on the end of a hammering yesterday, despite takeover rumours sweeping the market like wildfire.

Traders were hearing talk that ST MicroElectronics was running the slide rule over a potential bid. Yet the stock spiralled 5.56 per cent to 148.75p at the close.

The market was pouring cold water on the rumours by the end of the day. One analyst speculated the talk could have been circulated by an investor trying to exit from a position in ARM.

The market was unable to maintain its strong performance on Wednesday, sparked by Carlsberg and Heineken charging on Scottish & Newcastle. The FTSE 100 slumped by as much as 90 points as nervousness returned, with a weak start in the US not helping. London rallied to close 68.3 points lower at 6,609.4.

Onlookers were left scratching their heads. One analyst said: "It's not clear why it fell so much. Although when the Dow opened weaker, London followed it with unusual enthusiasm."

It was dragged lower partly by financial stocks with Alliance & Leicester the lowest, 3.45 per cent down at 756p, but the worst hit were the housebuilders. It was hard hats all round for investors in the sector after it was downgraded by Cazenove. The worst performer was Taylor Wimpey, down 5.15 per cent at 253.25p, closely followed by Barratt Developments, which shed 5.12 per cent to 658.5p.

The UK FTSE Real Estate sector has fallen 29 per cent so far this year, underperforming the market by 33 per cent. The blue blooded broker said, despite this underperformance, it saw "potential for significant net asset value downgrades over the next six months as the severity of the underlying property market correction is captured in the net asset value".

The worst blue-chip stock of the day was DSG International, the group formerly known as Dixons. It slumped 8.75 per cent to 124.1p after warning on lower first-half earnings, driven by a £20m profits shortfall at PC World.

Panmure Gordon said despite negatives the statement "was not the bloodbath some were expecting".

On the flip side, Smith & Nephew was the highest riser on the back of solid earnings announcements from three of its orthopaedics rivals this week. The stock closed up 2.67 per cent at 615p as Landsbanki said the announcements, including yesterday's from Synthes in the US, gave Smith "a clear growth signal for the third quarter".

Shares in British Airways were at cruising altitude after talk of possible transformational deals. The airline was up 1.53 per cent to 430p on speculation it had held talks with BMI, as well as talk of a potential tie-up with a transatlantic rival. BA is also nearing a deal, alongside TPG, for Iberia. Collins Stewart posted a "buy" recommendation and a price target of 580p.

One of the strongest risers for a second consecutive day was VT Group, as rumours of a takeover bid refused to die down. Yesterday, the potential suitor was believed to be Babcock International Group. One trader believed any deal will be made using shares. VT rose 2.68 per cent to 632.5p, while Babcock was 1.5p lower at 576p.

Elsewhere on the mid-tier, Colt Telecom performed strongly after announcing third-quarter results. It rose 4.31 per cent to 187.5p on news pre-tax profits would be up from ¿1.3m (£908,000) in 2006, to ¿8.7m this year.

Things keep getting worse for Rank Group as yet another broker had a swipe. The stock took a bath on Friday, falling 30 per cent, after a profits warning. HSBC yesterday reduced its rating to "neutral", saying "uncertainty and a lack of visibility and clarity in earnings" would continue to cause negative sentiment. It weakened a further 2.5p at 108.25p.

Sports Direct International was sent sprawling after huge rises the previous day, on a screaming "sell" note from Oriel Securities. The stock performed about as well as the England football team in Russia the previous night, falling 5.11 per cent to 148.5p.

The note also said clients should pull out of Umbro, giving compelling reasons, including the loss of £15m in pre-tax profits should England fail to qualify for next summer's European Championships. Yet it was the wrong day, as the company shot up 27.5 per cent to 153p after revealing it was in takeover talks later in the day. The rumoured suitors were Nike and Adidas.

There was also further speculation of a bid for Woolworths at 28p a share. This did the rounds last week, with the blue-chip group Morrisons Supermarkets strongly linked. Woolies was up 0.25p to 21p.

Vyke Communications rose 11.69 per cent to 172p after a global agreement with the telecoms giant Nokia.

The architect SMC Group shed 13.24 per cent at 14.75p after it admitted it had pulled out of talks with a private equity bidder.