Market Report: BOC rises on talk of merger with German peer

In the wake of Deutsche Post's bid for Exel, City punters were busy hunting the market for the next takeover situation. They settled on BOC and drove shares in the industrial gases giant 37p higher to 1,084p. The group is no stranger to rumours that its days as an independent entity are numbered and most recently it has been talked of as a likely merger partner for its German peer Linde.

Analysts have long argued that a tie-up between the two makes a lot of sense. Last month, Deutsche Bank was heard telling investors that BOC and Linde are the only two large-scale gas companies that can attempt a merger without coming up against major regulatory hurdles on competition grounds. The future of the German group is very much in the hands of three banks which control about a third of its shares. Should they want to cut their holdings in the company, forcing it into marriage with BOC is certainly one way they could achieve this.

However, just over a week ago Linde's chief executive Wolfgang Reitzle seemed to dismiss speculation of a tie-up. He said that although the top management of the two industrial gases groups often hold talks about strategic partnerships, they have no plans to merge. Meanwhile, analysts are convinced that a bid for BOC from France's Air Liquide would be blocked by European regulators.

The wider FTSE 100 rose 32 points to a two-week high of 5,328 amid hopes that further merger and acquisition activity is just around the corner. O2, which is seen as unlikely to make it to the end of the year as an independent entity, rose a further 2.5p to 155.75p, while Lloyds TSB put on 2.5p to 458.5p.

Tate & Lyle managed a mere 1.75p rise to 462.25p because of concerns about Wal-Mart's launch of a rival to Splenda, T&L's zero-calorie sweetener. The US retail giant's own brand product is called Altern and, worryingly for the UK group, is priced at a 30 per cent discount to Splenda. Aggreko gained 15.75p to 225p as investors expect the supplier of temporary power generators to enjoy a surge in demand from the US after Hurricane Katrina.

In the world of online gaming, Investec Securities tipped PartyGaming, off 2.75p to 154.5p, as a "buy" before its interim results next week. The South African broker believes that business is booming at the group. Elsewhere in the sector, Empire Online added 6.5p to 255p as Arbuthnot Securities was heard ushering its clients into the stock. It believes PartyGaming will soon try to buy Empire as the group is an increasingly important source of new players for PartyGaming.

Corus gained 1p to 48.5p amid rumours that it is considering a takeover of the German steel firm Salzgitter. Corus is bigger than Salzgitter and could probably finance an offer. But analysts pointed out that the German state of Lower Saxony holds a 25 per cent stake in the group and suggested it is likely to block such a move. Regus, which was pretty much flat for the whole session, was in heavy demand during the closing auction and closed 6.75p higher at 118.25p.

Misys put on 2.75p to 228.75p after Merrill Lynch became one of the few brokers in the City to have a "buy" recommendation on the software group. About 75 per cent of brokers have either a "hold" or a "sell" rating on the company but Merrill thinks that now is the time for investors to start moving into the stock.

The US brokerage said: "The issue for the market is that over the past three years Misys has struggled with various issues in all its key divisions. However, we think we can see early signs of positive change." It believes Misys' banking division is re-emerging from years of under-investment and weak market conditions. Investors should not be surprised to see positive news flow from Misys in the coming months and further down the line possibly even earnings upgrades, according to Merrill.

Anglo Pacific rose 5p to 121p on word that its upcoming results will not disappoint, while Inspace added 6p to 147.5p after unveiling an £80m contract win from the London Borough of Hammersmith and Fulham.

Melrose Resources, which has a major gas asset in Bulgaria, was unchanged at 380p despite unveiling an interim profit of $17m (£9.3m), up from $2.4m in the previous year.

Finally, Highbury House Communications put on 1p to 4.4p as word spread that the former Sun editor Kelvin MacKenzie has been busy adding to his 19.8 per cent stake in the publisher.

Mr MacKenzie has steadily built up his holding and is not the type of person who is likely to play the role of the passive investor. Brokers believe he will take his shareholding up to 29.9 per cent and then insist on a board seat. Highbury is certainly in need of major reform as it struggles under a mountain of debt.