Takeover fever grips Grand Metropolitan

JOHN EISENHAMMER

and JOHN SHEPHERD

Investors bet pounds 30m yesterday on Grand Metropolitan, the international food and drinks colossus headed by Lord Sheppard, falling prey to a break- up bid, as big-deal fever gripped the London market. The latest UK inflation figures, which showed an unexpected rise to the highest level for more than two years, were shrugged off as expectations of several imminent mega-deals drove the FT-SE 100 index easily back through the 3,500 level, up nearly 50 points to 3,523.8.

Speculation about the suitor for Grand Met centered on Kohlberg Kravis Roberts, the American leveraged buyout specialist that made its mark in the 1980s with the record-breaking purchase of RJR Nabisco.

Grand Met, which owns Burger King, the spirits business IDV, and Pillsbury, was being pinpointed as a break-up target as the market saw unusually heavy action in options on the stock.

Dealers traded more than 1,500 contracts, of a million shares each, in call options of the November series at 500p. This compared with a stock market cash price yesterday of 441p, lifted 14p by the rumours. The latest share price valued Grand Met at nearly pounds 10bn.

The prospect of a monster bid ignited a market already raging with speculation of bids and counter-bids in the water and electricity sectors, and sentiment that the battle for Gartmore, the UK fund manager, is entering the closing stages.

Shares in Gartmore, which has attracted a wide circle of potential suitors from the City, the Continent and the US, were pushed up 13p to a new high of 289p as dealers convinced themselves that the contest will be all over within a week. NatWest Group and BAT Industries, the financial services and tobacco conglomerate, are among those strongly rumoured to be keen on adding Gartmore's pounds 24bn of funds under management to their own businesses.

In the slipstream of the Lloyds/TSB tie-up, the details of which were announced on Wednesday, the difficulties of other medium-sized banks remaining independent in the increasingly competitive retail financial services sector fired the imagination of dealers.

Royal Bank of Scotland remains the market's favourite for the next banking skittle to fall, with its shares rattling up 19p to 502p. The emphasis placed by the Lloyds merger with TSB on size, and the need for the largest possible country-wide branch network through which to deliver a broad range of financial products from mortgages and insurance to savings and investment plans, has strengthened the view that a number of other banks and building societies will have to rethink their strategies and seek a future in consolidation.

Trading was heavy in both Royal Bank of Scotland shares and those of Abbey National, as dealers focused on these two as a likely merger pair.

Memories of the effervescent deal days of the late 1980s are flooding back into the City as the corporate finance departments of investment banks are looking forward to a vintage year.

Takeover boom page 24

Market report, page 27