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Lloyds and TNS bid talk keeps FTSE buoyant

This article is more than 18 years old

Takeover speculation was rife in the Square Mile yesterday as the FTSE 100 closed above 5,800 for the first time since the summer of 2001. However, only two rumours really interested market professionals. One was the Lloyds TSB/BBVA bid story, on account of the extremely heavy trading in Lloyds shares - stock worth £1bn changed hands as Lloyds rose 25.5p to 535p. The other was a bid story involving Taylor Nelson Sofres, the world's second biggest market research company

Talk that a private equity group might launch a break-up bid for TNS has been doing the rounds for some time. However, it has been given extra impetus in recent weeks by events in The Netherlands, where a consortium of venture capitalists are attempting to buy VNU, the industry's biggest player.

According to analysts, TNS screens well on a number of leverage buyout metrics and, more importantly, has a tiny pension fund deficit. They also point out there would be no shortage of buyers for TNS' various businesses.

The world's biggest advertising agencies, WPP, Publicis, Havas and Omnicom are all looking to bulk up in market research because of its growth potential. Martin Sorrell, the chief executive of WPP, up 5.5p to 629.5p, has made no secret of his interest in Synovate, the market research business of Aegis, 3p higher at 130p.

TNS, which has underperformed its peers over the past couple of years, closed 15.25p higher at 265p.

The FTSE 100 rose 41.3 points to 5,801.6, supported by the numerous bid rumours and a good performance from satellite broadcaster BSkyB, which gained 16p to 502p after reporting strong half-year figures. Elsewhere, the FTSE 250 shot up 103.5 points to 9,276.1 - a record high - while the FTSE Small Cap index improved 20 points to 3,511.9.

ITV was among the best blue chip performers, rising 3.25p to 111.5p on the back of a research note from bond analysts at CSFB, which argued that the broadcaster's depressed share price and efforts to reduce its pension fund deficit had left the company vulnerable to a private equity bid.

Barclays, 13.5p higher at 614.5p, was also in demand, excited by the Lloyds takeover rumour. That said, some traders reckon the Lloyds story was something of a red herring and that the real takeover target in the banking sector is Barclays.

Domestic gas supplier Centrica firmed 3.25p to 270p after a leading broker upgraded it to buy citing the value that could be created by a break-up.

Citigroup reckons 2006 will be a tough year for Centrica because the price of gas show no signs of weakening. But instead of giving up on the company or waiting for a bid to emerge, the US broker believes shareholders should push for a break-up.

"If each of Centrica's businesses were sold separately we think they could attract wide interest and many bidders and therefore have a very good chance of attracting premium prices. It is not unrealistic to calculate a radical-break up could deliver a value of 360p-a-share given market conditions," Citigroup analyst Peter Atherton said.

Cable & Wireless remained under pressure, however, falling 4.5p to 97.75p as analysts slashed ratings and earnings forecasts. Lowering its target price to 90p, Deutsche Bank told clients that Tuesday's profits warnings meant a leveraged buyout offer was now highly unlikely.

Tesco was also under pressure, fading 3p to 315p on rumours that it is considering joining forces with private group KKR to bid for Dutch grocery group Ahold.

Vodafone eased 1p to 117p as traders fretted about increased competition in Spain. The company's performance in the Spanish market was one of the few bright spots in Vodafone's otherwise dark third-quarter figures last month but the European commission has rained on its parade giving the Spanish telecoms regulator approval to force the country's three networks to open up to virtual network operators, a move likely to increase competition.

Away from the blue chips, property developer Minerva advanced 15p to 304.5p on further consideration of Tuesday's research report from Citigroup, in which the US broker set a 370p target price. Minerva shares were also supported by talk of stake building by a rival keen to strike a partnership with the company.

Bid speculation was swirling around plant hire group Ashtead, 0.75p stronger at 194.75p. However, traders believe recent rumours that Ashtead is being stalked by a predator are wide of the mark. Instead they believe Ashtead is close to making a chunky acquisition in the US, where its biggest business, Sunbelt Rentals, is based.

In the small cap world, Raymarine, the marine electronics specialist, was marked 18.25p higher at 278.25p excited by the takeover of a US rival called Lowrance.

Medical Solutions improved 0.37p to 7.25p amid talk that the company has decided to float its Dubai-based operations, while Metals Exploration, the mining company focused on the Philippines, rallied 2.25p to 32.25p after an overhang was cleared.

Hunting target

Hunting, the oil field services group, was the best performer in the FTSE 250 yesterday. Its shares gained 22p to 342, lifted by the clearance of an overhang and inevitably takeover speculation. According to analysts Hunting's mixture of businesses - oil services, trading and transportation - could be attractive to its rivals, most of whom have higher stock market ratings. That said, Hunting should benefit from the fact that spending on new oil and gas exploration projects is set to soar in the next couple of years. Indeed, Royal Dutch Shell, which reports fourth quarter figures this morning, has signalled that it expects to increase capital expenditure from $15bn (£8.5bn) to $19bn this year, while ChervonTexaco has announced a 35% increase from $11bn to $14.8bn.

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