Market report: Friday close

 

Fashion retailer Next slumped 16p to 1289p today, despite the assertion of one of the City's big-hitters that it could soon become the target of a £20-a-share bid from its biggest rival, Marks & Spencer, ¾p off at 402¾p.

Credit Suisse is the latest broker to take a swipe at Next, asserting that the company has serious structural problems from which it may not recover.

But it concedes the business has real strategic value, and that might be enough to attract a £4bn bid from M&S.

Such a move would enhance M&S's strategic prospects.

Credit Suisse also reckons M&S could pay a significant premium for Next in order to benefit from the synergies and the use of the enlarged group's borrowing capacity.

Marks is not known for its acquisitions but did contemplate a bid for J Sainsbury, down 4¾p at 355¼p, last year. Credit Suisse is sticking with its target of 2000p for M&S.

Not everyone is convinced, however. Retail analyst Nick Bubb at Pali International reckons the idea of M&S bidding for Next 'seems a bit far-fetched'.

Shares generally gave up more ground, with the FTSE 100 index losing 81.36 to 5884.3. This afternoon on Wall Street shares were again on the slide following the latest consumer spending numbers, showing no change for the second month in a row. The Dow slumped 161.40 to 12,420.80. UBS says losses relating to subprime could top $600bn.

Hopes are growing of a break-up bid for Rentokil Initial after a second profits warning in just a few months from the parcels-to-plant services group. Rentokil lost almost a quarter of its value yesterday, but bear closing and bid hopes lifted it 2.9p to 83.4p today.

Standard & Poor's has dropped its outlook from stable to negative, citing Rentokil's weaker-than-expected operating performance and uncertainties about its earnings potential.

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Citigroup continues to rate the shares a buy although it has cut its target from 130p to 110p, reduced its earnings forecast and raised its debt levels by £300m. Merrill Lynch has cut its earnings forecast for the current year by 18% and its target from 140p to 105p. It has put a sum-of-the-parts valuation on the business of 120p.

A two-way pull has developed in aeroengines maker Rolls-Royce, down 2p at 434½p. Citigroup has downgraded earnings by 6%, worried by the weaker dollar and rising cost of raw materials. But ABN Amro has moved from hold to buy, although it has cut its target from 615p to 567p, because of currency factors. The order book stands at a whopping £37bn.

Morgan Stanley has upgraded Schroders, 18p up at 958½p, from underweight to equalweight with a target of 1160p. The broker said it made the move after February's 15% fall in the shares. Dealers say keep an eye on Carphone Warehouse, down 3¼p at 307¼p. There is vague talk of a bid. But that would need the backing of founders Charles Dunstone, with 33% of the shares, and David Ross, with a further 21%.

Accident management group Helphire tumbled 118½p to 172p after warning of a squeeze on margins. Pre-tax profits in the first half rose 7% to £19.4m.

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