Thorn spins high on hopes of a fast demerger

Hopes that Thorn EMI's long awaited demerger will be unveiled soon sent the shares spinning 50p higher to 1,588p.

The rush by Forte to split its catering and hotel operations once Granada emerged as a hostile bidder is thought to have speeded up the corporate minds at Thorn who decided in July to split the music and rental operations.

The advantages of such a move had been pressed on the group for years. But three years earlier it had turned its back on breaking up.

Takeover talk was almost certainly responsible for the about-turn.

Walt Disney was among those thought to be hovering, keen to buy what is regarded as one of the best music businesses in the world.

There is thought to have been considerable aggravation in the Thorn boardroom over the split. It is said directors were divided into three camps; those supporting a two way split (music and rental); a three way break up (music, rental and retail) and an entrenched band opposed to any division of the spoils.

The stock market believes Thorn has settled on a simple demerger - rental, which will include the retail business, and music.

This week the group added to its rental muscle in the US by splashing out pounds 65.5m for two companies.

With details of the split expected, analysts are busy calculating the likely value of the demerged group; a figure of 1,900p a share, with the music side enjoying the more glamorous rating, is a popular guess. If they are right the scope for Thorn to make further headway is clear.

British Airways was another flying high, inspired by a 7.9 per cent increase in December traffic and a pounds 10m UBS profit upgrade to pounds 580m.

Suggestions the group is on the verge of clinching a deal with American Airlines was another factor which helped fuel an 18p gain to 488p. Currently BA has a link with USAir, where it has a 25 per cent shareholding. There has been talk BA will sell its USAir interest which could restrict its American operations.

But American Airlines could provide the internal carry over service which BA needs for its trans-Atlantic flights.

British Aerospace, on Orange flotation considerations and talk of Middle Eastern contracts, gained 18p to 806p.

The rest of the market failed to continue its record breaking run. In morning trading the FT-SE 100 index reached a new trading peak, up 7.4 points at 3,723, but by the close was nursing a modest 1.5 fall at 3,714.1, despite a firm opening New York performance.

There is a belief the market could move ahead next week when many of the leading investment managers, who are inclined to take an extended New Year holiday, are back at their desks.

Second line shares, as measured by the FT-SE 250 index, continued to edge towards their peak, achieved nearly two years ago.

Takeover speculation remained in the insurance sector with Britannic up 14p at 813p and Refuge 11p higher at 485p. The Halifax Building Society is looking at an insurance deal and Liverpool Victoria is said to be stalking London & Manchester, up 8p at 428p.

Without a bid the insurances - and, indeed, most financials - look overvalued and unless corporate action breaks out soon the shares could be under pressure.

Takeover talk again swirled around Lloyds Chemists with Asda said to be prepared to offer 350p a share. UniChem was also in the frame. It was enough to lift Lloyds another 6p to 276p.

British Steel added 6.75p to 168.25p as US steel prices were lifted and Hanson continued its new year rally, gaining 6.5p to 203.75p with the staid conglomerate's 7.6 per cent dividend yield attracting increasing attention. It is regarded as a better dividend play than British Gas (7 per cent) and even P&O (7.8 per cent).

Spirit shares strengthened on suggestions Guinness, the biggest Scotch whisky group, was about to lift prices by around 3 per cent. Guinness rose 5p to 487p and the Highland Distilleries, the subject of recent sell advice, 13p to 342p.

The generators dimmed on a rumoured Goldman Sachs caution. National Power lost 8p to 436p and PowerGen 8p to 520p.

Inchcape's Hong Kong sale and the improving currency climate helped the shares 8p higher to 261p but Jacques Vert, a fashion group, was in tatters, off 66p to 115p, following a profit plunge.

Winchester Multi Media tumbled 15p to 56p on its publishing loss.