FTSE nears all-time high as Arcadia and M&S gain on takeover talk

Market Report

THE FTSE 100 was propelled within a mince pie's throw of its all- time high yesterday as a flurry of rumours swept the downtrodden retailers.

Marks & Spencer and Arcadia stole the show for most of the day as investors piled into their stocks before heading for the stores for their Christmas shopping.

M&S's story was the more intriguing of the two. The stock put on 10.75p to 283p in good volume amid talk that a giant venture capital group was lining up a bid.

According to industry and City gossip, the US private equity fund KKR is having a close look at the UK's premier retailer.

The aggressive US venture capitalist - whose bloody battle for control of Nabisco was chronicled in Barbarians at the Gate - is said to have been attracted by M&S's undervalued share price and strong brand name.

The KKR rumour added a new twist to the M&S saga. Until now, mooted predators were confined to trade players, such as Tesco, 0.5p lower to 179.25p, or retail entrepreneur Philip Green. However, the rumoured interest of a US venture capitalist triggered speculation that a rival such as Cinven or Candover could enter the fray.

One wild rumour suggested that M&S could even be bid for by leisure group Granada, 21.5p higher to 622.5p, after merging its TV retail business with Thorn.

The Arcadia story was more straight-forward. The shares soared 8p, nearly 13 per cent, to 71p in hefty volume on returning talk that Mr Green was considering a bid or even buying a stake. Cooler heads said that any offer is unlikely before Mr Green comes back from his Christmas break.

The takeover excitement spilled over into other retailers. Sainsbury's bagged a 3.75p rise to 329p on renewed rumours of interest from Dutch group Ahold. Safeway, 16.25p higher to 219.25p, was also supported by speculation of a foreign strike early in the new year.

Even struggling Storehouse rose 3.75p to 44p on hopes that Littlewoods' interest in some of its stores could trigger a break-up. Vague takeover rumours pushed House of Fraser 5p higher to 63p and GUS 7p better to 337p.

The rest of the market went on a shopping spree which left the leading index 52.6 higher to 6,724.6 - a mere 17 points from the all-time peak reached a fortnight ago. The FTSE 100 was in the blue from the word "go" as fund managers entered the last full week before the Millennium clearly determined to push up their performance. A rip-roaring opening rally on Wall Street reinforced the earlier gains in the afternoon.

Insurer Prudential spearheaded the blue-chip advance, rising 73p to an all-time high of 1,152p. Most of the rise came in the afternoon when brokers Merrill Lynch and Deutsche pushed through large buying orders amid talk of corporate action and late whispers of a flotation of its Internet bank Egg. Smaller rival St James' Place firmed 10.5p to 230.5p on renewed talk of a strike from the Pru or another competitor, while Legal & General rose 4.25p to 164.25p on growing bid whispers.

Among banks, revived takeover hopes and a Commerzbank push sent Barclays 58p higher to 1703p.

Telecom stocks were once again one of the index's driving forces on hopes that sector consolidation will soon take off. Likely targets include Energis, 171p higher to a record 2,957p, and Colt, 133p better at 2,900p, while BT, up 65.5 to 1,381.5p, is a mooted predator.

Monday's promotions and relegations from the FTSE 100 took their toll. The drop-outs - British Energy, down 20.5p to 352.5p, and Severn Trent, 19p lower to 591p - were hit as index trackers switched into hi-tech stars CMG, up 209p to a record 4,219p, and ARM, up an amazing 622p to 3,970p. The latter was also helped by a Merrill Lynch "buy" and pounds 54 price target.

The midcap touched a new all-time high of 6,330.5 after a 68.4 point rise as takeover rumours continued to entice the buyers.

Old bid chestnut Greenalls jumped 22p to 297p on takeover talk and its decision to return 160p per share to shareholders. Investment bank Gerrard gained 27p to 539p amid whispers that a rival is lurking, while bus group Arriva motored 14.5p higher to 259.5p on rehashed talk of a bid from National Express, 15p lower to 685p.

Property group Peel Holdings crumbled 45p to 437.5p on talk that Monday's interims will be grim.

The minnows were lively pushing the Small Cap 5.6 higher to 2981.5. Two AIM floats caught the eye. Internet incubator Underwriting & Subscription, listed at 25p, more than doubled to 57.5p, while hi-tech group RTS NetWorks, floated at 62.5p, almost quadrupled to 235p. Robotic Technology, its 40 per cent owner, firmed 17.5p to 582.5p.

Talk of an imminent acquisition of a private biotech company sent Medical Solutions 3.5p higher to 24.75p.

Rival SR Pharma jumped 17.5p to 357.5p ahead of Monday's admission to the main list and techMark. Hopes of an Internet reverse takeover pushed United Energy 1.5p better to 18p.

Ceramics manufacturer Beauford soared 1.75p to 4.25p on vague talk of a bid or a management buyout, while electrical equipment maker Fortress Holdings, the old Arlen, buzzed 0.25p higher to 31.75p amid talk of a large deal for one of its products.

Whispers of new deals swirled around reflective ink group Reflec, flat at 15.37p, while David Lloyd's MV Sports was stuck at 1.750p despite returning rumours of a deal.

A trio of stocks were hammered by profit warnings. Sellers milked Robert Wiseman Dairies, 32.5p lower to 135p, shoemaker FII, 4.5p down to 29p, and wall coverings manufacturer William Nash, 17p worse at 130p.

SEAQ VOLUME: 1.33BN

SEAQ TRADES: 104.868

GILTS: NA

f.guerrera@independent.co.uk

SHIPPING GROUP Ugland International created waves yesterday when a near 9 per cent stake changed hands. Some dealers said the holding was the first step in a proposed management buy-out at 63p. Under the plan, chairman Andreas Ugland is to buy a 12.8 per cent stake from shareholder Saltchuck and then mount a 63p-per-share cash bid for the whole company. But other punters said Mr Ugland's MBO may be trumped by a higher offer.

A FEW investors yesterday were storing away shares in the data storage group Plasmon amid talk of an imminent deal. The buying sent the stock 37p higher to an all-time high of 278p. The company's fans are convinced Plasmon is poised to add to its list of blue-chip customers. The company has won contracts to store data for banks, insurance firms and the government and a deal with another illustrious client could be announced soon.