Market Report: Granada sparkles on talk of Sky sell-off to Vivendi

GRANADA WAS the star of the show yesterday amid whispers that it is about to shed its stake in BSkyB.

Granada, the TV and hotels group, beamed 46p higher to 1,204p on pretty chunky turnover on hopes of an offer for its 4 per cent interest in Rupert Murdoch's satellite television group BSkyB, which closed 7p higher at 601.5p.

Dealers were speculating that the French utility giant Vivendi is sniffing around Granada's Sky holding. The rumour had a certain appeal.

The Paris-based conglomerate has recently announced the takeover of the media group Pathe - which owns a 17 per cent stake in BSkyB - and is believed to be keen to buy some more to broker a merger between Sky and its French rival Canal Plus.

Granada's stake in Sky is held in a company jointly owned with Pathe and the UK media group Pearson, down 8p to 1,318p. The two British companies have long said that they wanted to sell their stakes and it would make sense for Vivendi/Pathe to buy them out .

The story was lent further strength by sources close to Pearson. They said that although no approach has been made, they expected the French to get in touch over the next few months, maybe after the September close of the Vivendi/Pathe deal.

Buying out Pearson and Granada would give Vivendi a near 25 per cent stake in Sky and would enable the French group to challenge Mr Murdoch's dominance of BSkyB.

The Gallic company owns a 34 per cent stake in Canal Plus and is keen to merge it with Sky to create a European pay TV powerhouse. Talks between the two broke off in March after a row over the management control of the merged company. Since then, the Australian-born tycoon, who owns around 40 per cent, has tightened his grip on the company through his recent appointment as chairman.

However, an enlarged stake would boost Vivendi's negotiating power and, according to some daring traders, could even lead to a bid for the whole of BSkyB.

Granada's rival Carlton was also in demand, rising 17p to 533p ahead of an important conference at broker ABN Amro later this week. The Carlton's spike re-ignited talk of a merger with Granada. However, analysts dismissed the idea.

The rest of the market had an "off" day as worries about US interest rates depressed sentiment. A bout of profit-taking in some heavyweight stocks did not help. The FTSE 100 refused to attack its all-time peak and ended 28.8 lower at 6,552.4, slavishly following Wall Street's downward path. A mini-rally just before the close, triggered by a similar move in the Dow, spared the index the blushes of closing at the day's low. Several big players are unwilling to take positions ahead of next week's US Federal Reserve meeting.

The FTSE 250 was also on the losing side, finishing 22.3 lower at 5.925.1. The Small Cap confirmed its good form and bucked the trend to close up 4.2 to 2,652.

Invensys, the old BTR Siebe, fell foul of the profit-takers and shed 13.75p to 316.5p - the day's worst blue chip - as dealers cashed in on the recent good run.

Billiton, one of the out-performers of the past few months, took a pasting. The mining giant shed 7.5p to 208.25p after rival Alcan warned that the aluminium market is looking grim.

Resurfacing worries over US bonds were a good excuse to sell the financials. Halifax was a casualty, losing 22p to 800p. Abbey National, down 23p to 1,302p, and Barclays, 21p lower at 1,990p, were also unloved.

The fund manager Perpetual kept the sector's flag flying, soaring 167.5p to 3,650p on growing speculation of a strike from Goldman Sachs or Morgan Stanley.

Telewest jumped 7.5p to 283.75p on continued hopes of a merger with rival cable company Cable & Wireless Communications, up 11.5p to 625.5p.

Hilton, the old Ladbroke, booked a 4p rise to 276.5p as Salomon Smith Barney went positive and talk of a merger with its US namesake returned.

Services group Hays firmed 20.5p to 710p after CSFB said "buy" and dealers whispered of an imminent acquisition, while Marks & Spencer greeted Sir Richard Greenbury's departure with a 1.5p rise to 363p.

Orange was squeezed 29.5p lower to 878.5p after British Aerospace, down 1.5p to 408.5p, said it would sell its remaining 5 per cent stake through a pounds 700m convertible bond brokered by JP Morgan and Goldman Sachs.

Takeover talk buoyed the midcappers. The building materials group Rugby constructed a 6p rise to 128p on whispers that a bid is near. Smaller rival Tudor jumped 5.5p to 79p after unveiling an 80p-per-share takeover offer. Express Dairies milked talk of sector consolidation and imminent liberalisation of the dairy market to rise 5p to 140p. Computacentre clicked 30p higher to 433.5p ahead of an analysts' presentation today and amid some vague US bid talk. Computer services specialist FI Group jumped 20p to 322.5p ahead of next week's results.

Micro-chip maker ARM Holdings buzzed 35p better to 717.5p after signing a deal with the US telecom equipment giant Lucent, while engineer Halma soared 14.5p to 113p after good results and a share buy-back plans.

Rail maintenance group Jarvis used to be a go-go stock. Yesterday it turned into a went-went stock, plummeting 171.5p to 322.5p after appalling results. Fellow Railtrack clients Amec, down 7p to 256p, Amey, 17.5p worse at 722.5p and BICC, 6p lower to 90p, fell in sympathy.

Chemring was the star tiddler. The defence group rocketed 20p higher to 168.5p after confirming a bid approach.

Bombed-out bio-tech Cortecs recovered 1.5p to 14.75p amid hopes of positive drug trials. Allied Carpets rolled 1p higher to 37p on vague bid talk, while rival Carpetright jumped 12p to 386p after well-received figures. Property group Compco shed 6p to 310.5p after placing over 3m shares at 280p to pay for five properties recently bought from Brixton Estates. MTL Instruments, a maker of industrial kit, plunged 25p to 265p after a profit warning, just like tiny housebuilder Tay Homes, down 6.5p to 103.5p.

SEAQ VOLUME: 980.5m

SEAQ TRADES: 73,938

GILT INDEX: N/A

TOPS ESTATES, the shopping centres developer, soared 29p to 165p yesterday after a 5 per cent stake was sold at 170p. Insiders said the chunky line of stock is part of the near 16 per cent holding owned by activist shareholder PDFM. The buyer could be another property group eager to buy Tops, where chairman Everard Goodman owns a 44.4 per cent stake. Dealers mentioned the George Soros-backed Delancey Estates, which recently failed to buy Greycoat.

BUYERS WERE all over carpet-maker Stoddart International yesterday. The shares firmed 0.75p to 6p as dealers talked of a possible takeover bid. Rivals Gaskell and Victoria are rumoured to have been attracted by Stoddart's undervalued shares. Either could plump for a bid north of 10p per share, valuing the company at over pounds 6m. Last year, Stoddart lost pounds 2.1m on sales of pounds 42m and the stock is trading at hefty discount to its estimated 19p-per-share NAV.