Market report: Friday close

By Hugo Duncan for the Daily Mail
Updated: 12:12 EDT, 27 July 2007

Shares in Resolution soared today as Hugh Osmond's Pearl Group continued to build its stake in the life insurer, putting the proposed merger of Resolution and Friends Provident under threat.

Pearl added just under 2% to its existing 11.3% stake in Resolution last night after Morgan Stanley launched a dusk raid, buying shares at 650p.

Pearl is now waiting in the market to take its stake above 16% but will not pay more than 650p. Resolution rose 18p to 649½p.

The interest of Pearl put pressure on the £8.6bn merger between Resolution and Friends Provident to form a new company, Friends Financial. Friends Provident shares fell 1½p to 180p.

Osmond said: 'Based on its current understanding, Pearl does not believe that the merger proposal will maximise value for Resolution's shareholders.'

Pizzas-to-pubs entrepreneur Osmond has brought former JP Morgan Cazenove vice-chairman Terry Eccles on to his board to advise on situations exactly like this. Eccles is probably best known for being the key adviser on the merger of Lloyds Bank and TSB in 1995.

The private Pearl and public Resolution have regularly competed to buy closed life companies in the past.

Property stocks were on the rise as shares bounced back from yesterday's bloodbath. Rising interest rates have weighed on the sector for some time but it staged something of a recovery. Persimmon was the largest blue-chip riser, up 21p to 1099p, followed by Liberty International, which gained 12p to 1038p, and British Land, rising 8p to 1212p.

There was also some good news for sugar giant Tate & Lyle thanks to upgrades from neutral to buy from UBS and Merrill Lynch. UBS said the anticipated slide in earnings has occurred and demand for sucralose is encouraging, although it shaved its target price from 660p to 650p. Merrill, meanwhile, maintained its target of 675p, suggesting Tate's woes over the US dollar and Splenda are factored in to the share price. Tate ticked 3p higher to 563p, having dived from a peak of 820p last year.

It was a turbulent day in the City as investors struggled to come to terms with fears that the crisis in credit markets could signal the end of the privateequity buyout boom.

The FTSE 100 index crashed more than 200 points yesterday - its biggest sell-off since before the war in Iraq - and opened a further 58.9 points down today. Less than two hours later, it bounced back to stand up 64 points but the recovery was short-lived, leaving it down 36 points at 6215.2. It has lost more than 350 points this week.

Matt Buckland, a trader at CMC Markets, said: 'Traders are well and truly spooked over the US credit issues, while mixed earnings data is adding to the general level of concern.'

The gloom was mirrored across the Atlantic, where the Dow Jones Industrial Average was down 6.6 at 13,467 in early trading in New York. It followed losses of more than 300 points last night.

Back in London, Alliance & Leicester was on the slide after it was hit by a slowdown in the mortgage market on the back of higher interest rates. Collins Stewart said the shares were 'relatively overvalued', and downgraded the stock to sell. The shares fell 14p at 1017p.

Bradford & Bingley ticked up 2½p to 400¾p despite a bullish note from Citigroup. The broker raised its target from 425p to 440p, citing an expected £500m of share buybacks by the end of 2009, although it maintained its hold rating, given the grim outlook for mortgage banks in the UK.

The Bank of England has increased interest rates five times since last August, sending a severe chill through the housing market. Signs of a slowdown have made a further rise next week unlikely. The pound lost almost two cents against the dollar to 2.0301.