Matalan rises on speculation of Wal-Mart takeover

Matalan was flavour of the day among those pushing takeover stories yesterday. The last time the discount retailer was mentioned as a likely bid target, gossips talked of a move on the group by Kohlberg Kravis Roberts. Then the talk was of John Hargreaves selling his 52 per cent stake in Matalan to the US private equity giant and thereby sparking a bid for the company. Yesterday, dealing rooms were alive with talk of an offer from Wal-Mart, the world's biggest retailer.

Matalan was flavour of the day among those pushing takeover stories yesterday. The last time the discount retailer was mentioned as a likely bid target, gossips talked of a move on the group by Kohlberg Kravis Roberts. Then the talk was of John Hargreaves selling his 52 per cent stake in Matalan to the US private equity giant and thereby sparking a bid for the company. Yesterday, dealing rooms were alive with talk of an offer from Wal-Mart, the world's biggest retailer.

Given the size of his holding, Mr Hargreaves, who founded Matalan and remains its chairman, has the company's future in his hands. It has long been rumoured that Mr Hargreaves is keen to dispose of his holding and that a deal has failed to materialise only because he has struggled to fund a buyer who will offer him the right price. Could Wal-Mart be that buyer? Those who piled into Matalan certainly hope so. They sent the stock 7p higher to 203p.

Meanwhile, the FTSE 100 index was in retreat. It closed 39.3 points lower at 4,287.0 as investors responded to losses on Wall Street. The FTSE 250 fell 63.2 points to 5,927.9. An attempt by ISoft to quell questions over its accounts failed to protect its shares, which closed down 41p at 350p. Egg fell 2p to 148p as Merrill Lynch cut its rating on the internet bank to from "buy" to "neutral" and lowered its fair value target to 156p.

Trading in Virgin Mobile shares went unconditional. Investors brushed aside yet another a downbeat note from a City broker and moved into stock, helping it gain 1.25p to 191.25p. Last week VM had to contend with some ultra-bearish comments from Commerzbank Securities and yesterday it was the turn of Lehman Brothers to stick the knife in. The US broker initiated cover of VM with an ""underweight" rating and cautioned that the mobile phone group could be hit by growing competition in the UK market. Elsewhere in the sector, Vodafone fell 2.25p to 114p, while mmO2 retreated 1.25p to 84.25p.

Lower down the pecking order, Jarvis soared 30 per cent, or 12.5p to 53p, as the market looked to the deadline later this week for the beleaguered engineer to pull off a refinancing deal with its banks. Many believe that an agreement will be struck as there is an underlying business to salvage and the banks do not want to take it over and be left having to fulfil Jarvis' obligations under its complex engineering and construction contracts.

"It will probably go down to the wire as the banks will want to get the best possible terms from Jarvis," one analyst said. The company will announce the outcome of a strategic review on Thursday while credit lines with its lenders expire on Friday.

Motion Media gained 0.25p to 4p on word that Scotty, the Austrian video telephony group it acquired recently, will unveil a new product at a conference in Beijing, China, later this week. Analysts calculate that the Scotty purchase turns Motion Media into a profitable concern. TEG Environment Group moves up from the unregulated Ofex market to AIM today. On the way, the waste disposal specialist raised £1.9m via a placing put together by Canaccord Capital at 50p. Virtue Broadcasting added 0.25p to 4.5p after announcing the £18m acquisition of World Television, a production company. It is currently broadcasting in Iraq as part of a Foreign Office-backed initiative.

British Energy ticked 0.75p higher to 17.25p on talk that Polygon Investments is looking to add to its holding. The hedge fund declared a 5.6 per cent stake in BE late on Friday and has launched a campaign to scrap the electricity generator's proposed £5bn debt restructuring. Polygon argues that the restructuring is "worse than a mugging" for BE's shareholders and has offered to underwrite a new refinancing deal that will deliver much greater value to the company's shareholders than the present plan on the table.

Dealers noted that more than 14 million BE shares were traded yesterday and suggested that Polygon may have already started the process of building on its 5.6 per cent holding. However, some in the Square Mile were sceptical of Polygon's intentions. They point to the involvement of Appaloosa in the BE saga back in January. The US hedge fund took a stake similar in size to that of Polygon, which prompted much speculation about their intentions. But the fund took advantage of the subsequent jump in BE's shares price and sold down its stake, thereby making a quick turn.

Nevertheless, Polygon seems to be more intent on salvaging shareholder value at BE. They have submitted a refinancing proposal to the company, for which they having the backing from the 6 per cent shareholder Invesco and have hired a City PR company to publicise their case. But if it really want to show BE and the City that it means business, Polygon should have been seen adding to its stake aggressively, analysts suggest. As the old adage goes, money talks.