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Takeover speculation livens up market

This article is more than 16 years old

Traders were spinning a new raft of takeover tales today, which livened up the market ahead of the US Federal Reserve's key interest rate decision due this evening.

DSG International - the electricals retailer formerly known as Dixons - jumped 8.6p to 129.5p on reports that US group Best Buy might be looking at the business. The American retailer has also been linked with Carphone Warehouse, where it has taken a 3% stake.

Meanwhile Premier Oil climbed 72p to £12.40 as traders heard talk that Royal Dutch Shell, down 2p to £21.05, might be running the slide rule over the company. Italy's ENI and Australia's Santos were other names in the frame, although sources close to Premier said: "There is nothing going on at this stage that we are aware of."

Pubs group Mitchells & Butler jumped 40.5p to 665.5p as Irish tycoons John Magnier and J.P. McManus revealed a 3.4% stake in the company through their Elpida Group investment fund. Kaupthing analysts said: "A recent purchase of about 1.5m shares on October 26 took their investment from just under 3% to their current declarable holding of 3.4%. The only comment associated with this investment was that the duo viewed Mitchells as a 'value investment' with 'great potential'.

"We would echo those thoughts and reiterate our positive stance on the stock (with results due on 29th Nov) and our target price of 781p which does not include any property company benefit. If we were to do so our target price would be around 900p."

By the close the FTSE 100 index was 62.6 points higher at 6721.6, with the FTSE 250 up 186.9 points at 11,666.0. Wall Street opened higher ahead of the Fed rate decision and after stronger-than-expected GDP figures. Most economists expect a 25 basis point cut this evening, but the decision is finely poised. No move or a 50 basis point cut and the markets will wonder what the Fed knows that they do not.

ING economist James Knightley said: "US third quarter GDP is stronger than expected, rising 3.9% quarter on quarter annualised versus a consensus estimate of 3.1%. There is likely to be some doubt in the minds of one or two Fed officials regarding whether they should be cutting rate later today - especially with higher food and energy costs expected to push headline [inflation] above 4% year on year in the next couple of months. Nonetheless, with the outlook for 2008 deteriorating a 25 basis point cut remains the most likely scenario."

Even though the Fed may cut, the prospect of a reduction on this side of the Atlantic receded after the Nationwide reported a 1.1% rise in house prices in October.

This news, alongside an in-line trading statement, helped Britain's biggest housebuilder Taylor Wimpey rise 14p to 247.5p.

Vedanta Resources recovered 79p to £22 after yesterday's retreat, while fellow miner Antofagasta edged up 4p to 837.5p despite cutting its full-year production forecast at its biggest mine from 312,000 tonnes to 285,000 tonnes.

Sugar group Tate & Lyle added 2.5p to 435.5p even though it reported a 20% fall in half-year profits. The market had been expecting bad news since the company's third profit warning in nine months, and news of a possible rise in sweetener margins helped lift the shares.

Consumer goods group Unilever lost 27p to £16.25p ahead of third quarter results tomorrow, on fears of a slowdown in growth. US rival Proctor & Gamble has just announced its quarterly earnings will be below expectations, partly due to increased costs because of rising commodity prices.

To add to Unilever's woes, its Indian division today reported a higher-than-expected 22% fall in quarterly earnings.

These concerns also hit Reckitt Benckiser, down 26p to £27.89.

Supermarkets were little changed after what was seen as a benign Competition Commission report, with Tesco the major mover, up 16.25p to 488p.

Engineering group Invensys added 17.5 to 327p as it sold its APV division for £250m to US manufacturer SPX Corporation.

Harry Philips of Evolution Securities said: "Invensys is transforming itself into a pure infrastructure play based around process automation and rail - the next stage will be the exit whether as a whole or in parts from controls and this will leave the company with a cash position of between £900m and £1bn. While the credit crunch has seen private equity disappear momentarily from the possibilities, the fact that a trade buyer has popped up for APV demonstrates that there is a bigger world out there beyond private equity."

Elsewhere Premier Foods was 7.75p better at 225.5p as Collins Stewart upgraded to buy with a 250p target.

The broker said: "In September we wrote that there was a good story waiting to emerge from Premier, but that it might take time to emerge. Whilst it may still be next year before the story becomes better fleshed out, the risk-reward has shifted in favour of the latter at the current valuation and we expect the market to begin to look through some of the near-term issues."

Oil services group Hunting rose 11.5p to 736p. Analysts reckon the company is undervalued in the light of an $800m deal in while Vallourec bought the tubular technologies business of Grant Prideco, an operation similar to one of Hunting's divisions.

Retailer Woolworths rose 0.75p to 21.25p after a trading update which, while it showed some caution ahead of the crucial Christmas period, was no worse than expected.

But dry cleaning and workwear business Johnson Service slumped 66.25p to 146.5p after a profit warning - contained in an uninformative four paragraph announcement - while recruitment group Imprint added 2.5p to 107p after rival OPD confirmed it was in talks to buy the company for around 113.6p a share.

Landsbanki said: "At long last OPD has stated that it is in advanced discussions concerning a possible recommended offer for Imprint. Crucially the Takeover Panel has granted dispensation to OPD not to have to offer 183.5p, which was the highest price it paid for its 5% stake back in June. We consider that it was crucial to Imprint's business that a quick resolution of this ongoing saga of bid or no bid was achieved, as it had been affecting staff morale and Imprint's ability to retain and recruit new consultants. This affected September's trading - hence the recent profit warning.

"We recommend Imprint shareholders accept any offer that results in an exit price of around 105p."

Finally Umbro slipped 2.75p to 190.75p as doubts were raised about Nike's bid for the business after Mike Ashley's Sports Direct raised its stake in Umbro to 29.9%. Sports Direct added 8.75p to 144.25p.

Oriel Securities said: "We are slightly unsure as to the long-term thinking behind Mike Ashley's move. One thing for certain is that this will antagonise Nike ... and Nike (plus Adidas, whom Sports Direct have already riled with their almost day trading in the shares) are absolutely fundamental to the business model at Sports World.

"Therefore we find it hard to understand Ashley's motives. We continue to believe that this business model is under severe pressure and to be honest find it hard to value the shares. Keep selling [Sports Direct]."

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