Market Report: Threat of bid derailment takes toll on Umbro

Umbro's fortunes are closely linked to the England football team. Talk emerged yesterday that its takeover by Nike could emulate the national team's recent qualifying campaign for the European Championships, and potentially hit the rocks.

Unconfirmed rumours swept the market that shareholder Sports Direct International would try to derail Nike's knockout offer by referring it to the Office of Fair Trading.

The US giant launched a surprise 195p-per-share bid for Umbro in October. Its shares soared but have since retreated, and were down a further 7.14 per cent yesterday to 143p. Sports Direct, which has a 29 per cent stake in Umbro, fell 0.75p to 99.25p.

Umbro, which makes 50 per cent of its revenue from England kit sales, warned on profits earlier this year, and sales will fall further after the national team's failure to qualify for next summer's European championships when it was within its grasp.

Prudential enjoyed solid gains as rumours swirled around the insurer. In the morning, it was supposedly considering a flotation of its Asian operation. Later in the day, stories emerged that it could be preparing a bid for Aviva, less than two years after it turned down a 17bn takeover attempt by its rival. Prudential rose 2.87 per cent to 716.5p. Aviva was up 1.46 per cent to 696p.

The directories business Yell Group topped the leader board, strengthening 5.93 per cent to 419.75p after support from Merrill Lynch. The US broker said: "Yell's annual investor day was reassuring. Despite little fresh news, fears of a downbeat trading update proved unfounded."

Also up was Lloyds TSB, after releasing a trading update with no nasty surprises. Collins Stewart said the statement should comfort investors as the UK bank revealed it was on course to meet full-year profit expectations. The broker added that the 201m write-down brought on by the turmoil in the credit markets was "relatively small". Its shares rose 3.38 per cent to 504.5p.

Sector-wise, the housebuilders were strong, with Persimmon the pick, up 4.6 per cent at 824p. One dealer said: "There has been good buying interest in the housebuilders on the belief that there will be more interest rate cuts early in the new year. The sector has been bombed out and the talk has helped lift them."

Takeover talk buffeted Rio Tinto throughout the day. It soared in the morning as a supposed bid by Blackstone hit the headlines. The private equity group denied the reports as the shares slid, but the mining major closed up 38p at 5,784p on speculation of a bid from BAOSteel. The FTSE 100 yo-yoed in the morning, down 31 points, up 29.4. It closed 10.5p higher at 6,565.4 points.

Mitchells & Butlers ended the day as the lowest blue-chip performer, down 1.67 per cent to 499p. Several stocks fell on speculation they could be kicked out of the FTSE 100 this week. The index reshuffle is based on share prices at the close tonight and will be announced tomorrow.

On the second line, Alfred McAlpine was sitting pretty at the top after its board recommended a 572m bid from Carillion. This, despite a reduced offer. The bidder said it had lowered its cash and shares offer to 558p per share from 585p per share because of the weakness in the equity markets, although it had injected more cash.

Panmure Gordon said: "A recommended offer at a lower price is a good move plus a greater cash element should help persuade McAlpine holders." McAlpine soared 6.92 per cent to 525p, while Carillion tumbled 3.72 per cent to 349.75p.

Investors were hoping that another mid-cap stock would update the market on a potential takeover today. Carpetright rose 81p in the morning on hopes of bid news from its founder, Lord Harris of Peckham, as it reports its first-half numbers. It weakened to close 11p up at 1,015p.

The biggest faller was FKI, toppling 16.72 per cent to 64.75p as it revealed its operating profit will be hit by reduced sales and manufacturing activity. It said the fall in sales was due mainly to its subsidiary Logistex, which is exposed to the US retail sector.

One of the worst small-cap performers was Worthington Nicholls. The air conditioning and heating group shed 27.14 per cent to 12.75p on its first day back from suspension. It has been a terrible six months for the stock, which was valued at 167.25p in June, culminating in a warning of further write downs on Friday. Meanwhile, Moss Bros looked slick as the market reacted to confirmation that Baugur could lodge a bid for the clothing retailer. Its shares rose 22.15 per cent to 45.5p on the news.

Sanatana continued its meteoric rise, on the back of an encouraging diamond find on Friday. The group almost doubled for the second day in a row as it rose to 76p, its highest level for 18 months.