Market report: Friday close

By Mickey Clark for MailOnline
Updated: 12:13 EDT, 2 February 2007

The City went on bid alert today after a clutch of private equity companies admitted they were ready to band together and launch a £10bn bid for the UK's third biggest supermarkets chain, J Sainsbury.

Could this be the first in a series of blockbuster private equity deals designed to snatch Britain's commercial crown jewels? The speculators seem to think so, and have begun identifying other potential targets for private equity, even though many in the Square Mile are convinced a bid for Sainsbury's is a non-runner anyway.

The store chain's shares led the market with a leap of 61¾p to a record 507p, having briefly touched 526½p, as a massive 200 million shares changed hands. It came after CVC Capital Partners, Kohlberg Kravis Roberts and Blackstone were forced to concede they were at the 'preliminary stages of assessing a possible offer'.

The move was just a day after former Labour minister David Sainsbury sold 40m shares worth £176m. But the founding Sainsbury family remain the company's biggest shareholders and would have to be convinced of the need for a takeover.

Sainsbury's rivals were also caught up in the action. Wm Morrison raced up 16¾p to 300¾p with Tesco adding 15½p at 435p and former bid target Marks & Spencer 28½p to 717½p. Now investors must choose whether to hang on to Sainsbury's shares for the ride, or take a profit. Merrill Lynch raised its rating from sell to neutral, Morrison from sell to neutral and Tesco from neutral to buy.

The speculators say other companies likely to feature as targets for private equity money include British Airways, 8½p higher at 554p, Argos stores group Home Retail, 4½p better at 435½p, Comet retailer Kesa Electricals, 5¾p higher at 353½p, and leisure group Whitbread, 45p dearer at 1687p.

Pub chains with their strong property portfolios are also seen as vulnerable to takeover, such as Punch Taverns, up 42p to 1211p, Enterprise Inns, 18p to 665½p, Greene King, 39p to 1124p,

Mitchells & Butlers, 31p to 736p, and Marston's, 13¾p to 443¾p.

US investment bank JPMorgan has been talking up the prospect of a bid for Imperial Tobacco, which responded with a jump of 83p to 2175p. It has repeated its overweight rating and talks of the shares as an 'attractive potential consolidation target'.

The rest of the market responded positively to the news from Sainsbury's with the FTSE 100 index rising 28.7 to 6310.9. The Dow Jones Industrial Average opened 1.7 points lower at 12,672.0. National Grid retreated 1½p to 777p even though US house Lehman Brothers lifting its target from 680p to 710p on the expectation of a shareholder return of 17% this year.

Universal Salvage slipped 3½p to 186½p despite receiving an offer of 200p a share valuing the business at £57m. Universal said in September that trading in the first four months of its current year had been at the upper end of market expectations.

On the strength of that, chairman Alexander Foster topped up his holding, buying 25,000 shares at 150p to take his total stake to 187,500, or less than 1% of the shares in issue. His entire holding is valued at £367,500.

BANKING AND FINANCE
The leakage of funds from F&C Asset Management, part of Friends Provident, has weighed on its shares. Keefe Bruyette & Woods has downgraded from market perform to underperform, slashed its target from 225p to 160p.

BUILDING AND PROPERTY
Property firms continue to enjoy support. This time, the emphasis on sector consolidation with gossips pointing the finger at Hammerson, which they reckon could soon become the target of French rival Unibail.

CONSUMER
Oriel Securities says the departure of Pat O'Driscoll as chief executive of Northern Foods comes as no surprise. Her recovery plan was not working out, and the company has since switched its focus to margin improvement. .

ENGINEERING
Dresdner Kleinwort has started coverage of model railway group Hornby with a buy rating and a target of 320p. The broker says Hornby well-placed to be a prime consolidator in the European model market.

HEALTH
Collins Stewart previewed yesterday's annual results from drugs giant AstraZeneca and rated the shares a sell with a 2767p target. is worried about competition from cheap generic drugs. But Astra rose almost a quid on the figures.

INDUSTRIALS
Amec touched a new high of 469p yesterday despite December's profits warning. Speculators say last year's decision to reject two takeover approaches proved to be the right move as there is still value be had.

LEISURE
The decision by pub chains to call time on converting into Real Estate Investment Trusts should not deter investors looking for inherent value within their property portfolios, says ABN Amro. The broker is confident of further improvement in pub shares this year.

MEDIA
UBS has called for a re-rating of BSkyB after this week's second-quarter numbers. Lehman has raised its rating on the satellite broadcaster from equalweight to overweight. Merrill Lynch remains buyer with a 640p target.

NATURAL RESOURCES
Max Petroleum responded enthusiastically to an upward revision its oil reserves, the shares briefly touching 95p. Its Kazakhstan field now boasts recoverable reserves 157.9m barrels, which brokers say is way above earlier estimates.

RETAIL
Seymour Pierce notes Land Leather struggled during the January sales with like-for-likes down almost 5%. But full-year profits are still expected to match City forecasts of £18m. The broker has repeated its hold rating.

SUPPORT SERVICES
Numis has slashed its target Accuma from 450p to 150p after yesterday's trading update. It has also reduced its profit forecast the debt management adviser from £10m to £8.5m but continues to rate the shares buy.

TECHNOLOGY
Cazenove has raised Wolfson Microelectronics from in-line to outperform following the sell-off that greeted disappointing full-year numbers. The broker says Wolfson's consumers are still buying fewer chips than they consume.

TELECOMS
Investec describes Kingston Communications' £20m acquisition of Mistral as 'very good value'. The group has the highest yield of any of the smaller companies in the telecom sector and broker repeats its buy rating.

TRANSPORT
Airline Partners Australia, the consortium bidding for Qantas, said today its US$8.7bn (£4.4bn) takeover offer was final. 'The offer price of A$5.60 cannot, and will not, increased in the absence of alternative proposal,' APA said.

UTILITIES
E.On, the German utility that owns Powergen in the UK, today looked set to walk away with Spain's biggest power company, Endesa, after rival Gas Natural withdrew from the auction. E.On will pay e36bn (£23.8bn) for the company.