Market Report: Tobacco sector fired up by talk of takeovers

Bid fever well and truly gripped the City yesterday as takeover stories old and new did the rounds of dealing rooms. Talk of consolidation in the tobacco sector had the biggest effect on share prices as Imperial Tobacco jumped 61p to 1,430p on rumours of a tie-up with Spain's Altadis and Gallaher soared 33p to 795p as dealers talked of a move on the company by Japanese Tobacco.

Bid fever well and truly gripped the City yesterday as takeover stories old and new did the rounds of dealing rooms. Talk of consolidation in the tobacco sector had the biggest effect on share prices as Imperial Tobacco jumped 61p to 1,430p on rumours of a tie-up with Spain's Altadis and Gallaher soared 33p to 795p as dealers talked of a move on the company by Japanese Tobacco.

Both stories were around last week but yesterday traders seemed convinced that news could be imminent. On the Gallaher front, bulls of the stock took the view that if JT were to pounce on the group then its rival BAT, up 6.5p to 890p, is bound to throw its hat into the ring, thereby prompting a bidding war.

Elsewhere, Corus rose 1p to 52p on rumours of a bid from the German steel giant ThyssenKrupp. Some even suggested that Thyssen might have picked up a sizeable shareholding in Corus from Alisher Usmanov. The Russian businessmen sold the bulk of his 13.4 per cent holding through Credit Suisse First Boston last week. Corus, however, poured cold water on the speculation of a deal with the German company. Meanwhile, analysts said that if anyone is building up a stake in Corus it is likely to become public before the end of the week.

Also on bid alert yesterday was GUS, which went 8.5p higher to 923p. Reports in the trade press last week linked a private equity consortium with an £11bn takeover of the retail conglomerate. In the media sector, Aegis, 1p lower at 100.5p, was talked about as being stalked by the French entrepreneur Vincent Bollore. He is know to have a large holding in the French advertising rival Havas and has a reputation as being something of an activist investor.

Not all were caught up in the bid fever however. Cynics argued that the majority of these takeover stories were most likely to have been spread by commission-hungry brokers looking to drum up some business during the traditionally quiet run-up to Christmas in the City.

The FTSE 100 roared 34.3 points higher to 4,731.1 thanks to strong gains by Wall Street. The FTSE 250 improved 22.5 points to 6,789..9

Viridian, 26p higher at 731.5p, was boosted by a bullish note from UBS. Raising its price target to 680p from 615p, the Swiss broker tipped Viridian to achieve some impressive profit growth in the coming years.

JJB Sports lost 1.5p to 184.75p after Numis Securities became the second broker in as many weeks to downgrade its forecasts on the sports retailer ahead of Christmas. "We are cutting our forecasts for JJB in the light of the continuing tough trading conditions and heavy discounting in the run-up to Christmas. With competition from main rival Sports Soccer intensifying, we expect the group to struggle to hit both sales and margins targets for the current year", the broker warned. Numis reduced its 2005 pre-tax profit forecast to £65m from £72m.

Elsewhere in the sector, French Connection fell 1.5p to 224.5p, Ted Baker lost 4p to 476p, The Body Shop retreated 4.25p to 162.5p and Alexon lost 3.5p to 311.5p as Nick Bubb, the retail guru at Evolution Securities, was heard suggesting that the much hoped for major spending spree ahead of Christmas had failed to materialise.

Market professionals were surprised to see MyTravel register a 0.42p rise to 5.90p after the tour operator finally received approval for its restructuring. This will see the group's £800m debt burden swapped into new MyTravel shares giving the company's creditors control and its present shareholders 4 per cent of the new entity.

Yesterday's price of 5.9p values the new post-restructuring MyTravel at more than £800m. Analysts believe this is too high and a look at the valuation of its rival First Choice explains why. First Choice also has an £800m stock market price tag and yet it is a company which recently posted an annual profit of £96m. This compares with MyTravel, which made a £190m loss for 2004. According to analysts, MyTravel after its restructuring is worth about £400m, half of First Choice's value. That means MyTravel's current shares should trade at 3p.

Genus added 2p to 260.5p on talk that the company will launch a new veterinary product next year. The drug is tipped as likely to generate significant sales for Genus by the end of 2005.

Pure Wafer enjoyed a strong start to trading on AIM. Listing at 145p, at which price the Swansea-based semiconductor group raised £7m, its shares roared higher to close at 172.5p. Even after this rise, brokers suggested that Pure Wafer trades at a significant discount to other semiconductor players in Europe.

Market Movers

↑ Manchester United 277.5p (up 11.5p, 4.3 per cent). Confirms reports that Malcolm Glazer, the US tycoon, has made a renewed takeover approach.

↑ London Stock Exchange 579.75p (up 23.75p, 4.3 per cent). Euronext launches counter bid for the exchange.

↑ Tullow Oil 150p (up 5.5p, 3.8 per cent). Announces the £200m acquisition of gas production assets in the North Sea from Shell.

↑ Carillion 230p (up 5.5p, 2.5 per cent). Wins contracts in Canada valued at £100m.

↑ Brixton 348p (up 8.25p, 2.4 per cent). Unveils two major disposals worth almost £400m.

↑ Image Scan Holdings 9.25p (up 1.25p, 15.6 per cent). Wins an order from Johnson Matthey worth more than £600,000.

↑ SDL 137.5p (up 21.5p, 18.5 per cent). Brokers applaud the deal secured by the company with Microsoft.

↑ Mediwatch 7.37p (up 0.87p, 13.4 per cent). Wins support for the type of product it is developing from a major medical expert.

↑ Cambridge Antibody 713.5p (up 81.5p, 12.9 per cent). Wins High Court battle with Abbott Laboratories over the rheumatoid arthritis drug Humira.

↑ Polaron 150.5p (up 13p, 9.5 per cent). Announces a £350,000 acquisition and bullish trading statement.

↑ WSP Group 252.5p (up 14p, 5.7 per cent). Boasts of increasing order book in many sectors and anticipates that the company will make a strong start to the new year.

↑ earthport 1.3p (up 0.1p, 8.8 per cent). Raises £1.5m and says it is mulling a takeover of Baltimore Technologies.

↓ Misys 207.5p (down 13.5p, 6.1 per cent). Pre-close period trading statement from the software group fails to excite.

↓ Probus Estates 0.37p (down 0.45p, 54.9 per cent). Warns that it remains in default on some of its debt obligations.

↓ Uniq 186p (down 20.5p, 9.9 per cent). Complains that its £100m pension fund deficit has stalled talks aimed at a takeover of the company.