Market Report: GKN lifted by talk it is a US takeover target

The Square Mile was awash with takeover stories yesterday, and top of the list was GKN. City punters piled into the car parts to aerospace group, pushing its stock 7.25p higher to 214.75p, convinced that a bid for the company is just around the corner, possibly from its US rival Delphi Corp.

The Square Mile was awash with takeover stories yesterday, and top of the list was GKN. City punters piled into the car parts to aerospace group, pushing its stock 7.25p higher to 214.75p, convinced that a bid for the company is just around the corner, possibly from its US rival Delphi Corp.

Analysts, however, were less certain of the link to Delphi. They argued that the US group's balance sheet was not strong enough for such a move. At yesterday's close GKN was valued at more than £1.6bn. But suggestions that the group is vulnerable to a predator is not new. At the end of last month, the broker Dresdner Kleinwort Wasserstein raised the issue in a note to clients and it upgraded the stock to "add".

Rumours of an offer for SSL International also circled the market. The healthcare-products player jumped 6.75p to 270p as gossips suggested that a larger rival is about to swoop on the company. Bulls of the stock reckon an offer could value the company at 450p a share or higher and tipped Reckitt Benkiser as the most likely buyer. SSL's key attraction to a rival is the cost savings that could be extracted from the group by eliminating distribution costs. It is for this reason that it may be able to justify such a hefty premium. A private equity player could not afford such a high price.

Meanwhile, easyJet shares were again off to the races, gaining 11.75p to 158.75p, as Icelandair raised its stake in the group to 10.1 per cent from 8.4 per cent. When it unveiled its holding on Friday, the Icelandic group hinted that it might boost its shareholding in the short term. One broker set to make a tidy sum out of Icelandair's appetite for easyJet shares is Teather & Greenwood, unchanged at 32p. The stock broker has been buying up stock on behalf of the Nordic airline and will enjoy a good commission. T&G also acted for Bakkavor, the Icelandic food company which built up a 20 per cent holding in Geest in June.

Vague bid rumours helped N Brown, the catalogue retailer, rise 10p to 128p while J Sainsbury improved 5.5p to 251.5p on hopes that Allan Leighton, who stepped down from a series of directorships yesterday, may be tempted to head up a takeover of the struggling supermarket giant.

The FTSE 100 index recovered some of Monday's lost ground, gaining 18.9 points to close at 4,583.4. Smith & Nephew dropped 10p to 454.5p in response to a downgrade by Credit Suisse First Boston. Cutting its rating to "neutral" from "outperform", the Swiss broker warned that recent results from S&N's rivals Stryker and Johnson & Johnson clearly indicated weakening market growth in hips and knees.

CSFB also noted that the orthopaedics group has delayed the launch of its ceramic-on-ceramic hip from this summer to the winter. Although this is by no means a major product for S&N, it is clearly not positive for the company.

The property sector was in demand after Merrill Lynch raised its forecasts for major industry players. It tipped British Land, up 19p to 743p, Liberty International, 13p better at 863p, and Hammerson, 12p higher at 736p, as its favourite stocks in the sector.

Investors continued to abandon Singer & Friedlander, down 7.75p to 271.25p, taking the view that a bid for the merchant bank is unlikely in the near term. However, Numis Securities remains convinced that an offer will eventually emerge for the company. The broker said: "We are of the view that S&F will be acquired and have stated a price of somewhere between 300p and 330p per share."

UBS cut its recommendation on International Power, steady at 156.75p. Pointing out that shares in the group have soared by 21 per cent over the past two months, the Swiss broker urged its clients to reduce their exposure to the company.

In the small-cap world, Armour Group gained 3.5p to 77.5p after delivering a 105 per cent jump in full-year pre-tax profits. The company, which has traditionally focused on providing in-car entertainment equipment, has a rapidly growing home electronics division. At present it is trying to convinced house builders to offer its home sound systems in new developments, and investors should not be surprised if Armour announces a number of deals in this area before the end of the year.

There was brisk trade in Multi Group, unchanged at 3.75p. The former tool-hire group is now a cash shell on the lookout for deals. Word has it Multi is considering an acquisition of a recruitment business.

Dealers reported "hot money" flowing into ebookers, up 5.75p at 222.75p. The online travel company recently put itself up for sale and the latest buzz to surround the group suggests that news of a deal may not be too far away.

Market movers

↑ WPP 539.5p (up 16p, 3.1 per cent). Announces forecast-topping third-quarter figures.

↑ Reuters 370p (up 7.5p, 2.1 per cent). Credit Suisse First Boston raises its price target to 410p from 370p after a meeting with the company.

↑ Westbury 383p (up 14p, 3.8 per cent). Unveils record interim results and a 20 per cent rise in its dividend payout.

↑ Carillion 217.5p (up 7.25p, 3.5 per cent). Director share-buying excites the market.

↑ TTP Communications 56.5p (up 8.5p, 17.7 per cent). Investors applaud a first-half profit of £1.8m compared with a loss of £5.4m last time.

↑ Regent Inns 42.5p (up 4.5p, 11.8 per cent). Announces new management team who say they are confident of arranging new banking facilities for the struggling pubs group.

↑ London Asia Capital 10.75p (up 1p, 10.3 per cent). Launches new China private equity fund with the US investment group Global Emerging Markets.

↑ Walker Greenbank 11p (up 1p, 10.0 per cent). Reports a first-half profit of £1m compared with a loss of £1.7m for the same period in 2003.

↑ EXC 8.5p (up 0.75p, 9.6 per cent). Issues a bullish trading statement.

↓ BP 531p (down 6.5p, 1.2 per cent). Profit taking after record third-quarter results.

↓ Kidde 166.75p (down 2.25p, 1.3 per cent). Investors await bid developments.

↓ Numerica 29.5p (down 3p, 9.2 per cent). Warns that trading levels at the group over the past four months have been below expectations.

↓ ID Data 2.5p (down 0.25p, 9.1 per cent). Closes its OneEighty Software business.

↓ BAT 817p (down 1p, 0.12 per cent). The outlook statement accompanying third-quarter results from the tobacco giant disappoints some.

↓ Kesa Electricals 271.5p (down 2.25p, 0.8 per cent). Bid speculation wanes.

↓ SurfControl 570p (down 15p, 2.7 per cent). Unveils lacklustre first-quarter results.