Market Report: Billiton glitters amid waves of takeover talk

BILLITON WAS the market's glittering prize yesterday amid talk that the metals group could be the next victim of the consolidation wave sweeping the sector.

The normally-quiet stock dominated the session, digging a near 13 per cent rise in high volume as big brokers told clients not to be short of the shares.

The South African group closed 34.5p higher to an all-time high of 302.75p - by far the best performer in a soaring FTSE 100.

The many supporters of the Billiton takeover talk said that fellow South African company Anglo American, up 173p to a record 3,771p, was the likeliest suitor. Anglo is big in gold but would love to expand in other base metals such as aluminium, which is one of Billiton's strong points.

With two mega-mergers among some of the world's leading largest aluminium producers announced over the past two days, the field of potential targets is shrinking and Anglo could be prompted to pounce soon.

However, its ambitions could be thwarted by Rio Tinto, up 61p to a record 1284.5p, another acquisition-hungry mining giant

The bid fever overshadowed a bullish Morgan Stanley note, which put a 380p price on Billiton .

A few sceptics argued that a takeover by either Anglo or Rio could create competition problems and suggested that Billiton could hit the acquisition trail itself. The struggling Belgian group Union Miniere was mooted as a target. As for Anglo, dealers speculated that if it missed out on Billiton it could go for the Australian rival North.

The heavy metal excitement spilled over to British Steel. A wave of buying, particularly from US investors, sent BS 2.75p higher to a yearly peak of 179p in heavy volume amid a raft of rumours. Some traders whispered that its merger with Dutch peer Hoogovens could be scuppered by a rival bid before its October deadline. Others suggested that BS could have a go at one of its Scandinavian rivals, long seen as sitting ducks.

A third theory talked of a possible sale of BS's 51 per cent stake in Avesta, its Anglo-Scandinavian subsidiary, although analysts dismissed the idea.

The sector takeover talk also buoyed Lonmin, the old Lonrho, which rose 15p to 625p.

The rest of the FTSE 100 put in a steely performance, jumping 138.9 to 6,153.3. Inflation-positive news contained in the quaintly-named Beige Book published overnight by the US Federal Reserve triggered a positive start in London. But the UK market really got going after the Dow rocketed higher on report of a possible merger between banking giant Merrill Lynch and rival Chase Manhattan or insurer American International Group.

The undercard was once again lagging behind, with the FTSE 250 rising 35 to 5,960.1 and the Small Cap edging 9.3 higher to 2,719.2.

The Merrill story reawakened bid talk in the UK financials. Insurer Norwich Union firmed 13.5p higher to 415.5p. The market believes that rumours of a joint venture with mutual Royal London Insurance could flush out a bidder such as Lloyds TSB, up 12p to 852.5p, or NatWest, 31p higher to 1152p. Rival Sun Life & Provincial jumped 22.5p to 452.75p after confirming the sale of GRE's life business to Aegon. Smaller rival CLM dropped 4p to 130.5p but after the close it confirmed that it is in talks over a 161p-per-share offer from rival Lloyd's group SVB, unchanged at 138.5p. The next mooted takeover target is BRIT, flat at 103.5p after the chief executive bought a line of stock.

Among drug companies, AstraZeneca shot 36p higher to 2,244p on talk that it wants to launch a cholesterol-busting drug by 2001.

Electricity groups were left in the dark by the tough price review and missed out on the FTSE 100 rally. United Utilities shed 56p to 740p, Scottish & Southern Energy dropped 15.5p to 540p, while Hyder blacked out 42p to 550p.

In the midcap the buns-to-guns conglomerate Tomkins rifled 3p higher in good volume amid returning rumour of a 400p-per-share management buyout. On a similar note whisky maker Highland Distillers toasted a 26.5p rise to 294p on talk of a bid to take it private. It also confirmed a joint venture with Remy Cointreau.

The Israeli software group Pilat Technologies was the pick of the minnows. The AIM stock surged 12p to a best-ever 71.5p on talk of several large contract wins. Rival Vocalis jumped 13.5p to 110p after agreeing to supply Freeserve, up 17p to 198p, with its speech-based e-mail.

Biotech tiddler Biocompatibles rose 8.5p to a yearly record of 128.5p on whispers of a major deal for its heart stents and vague talk of a bid. Telecom equipment maker Fibernet rang up a 21.5p rise to 459p on rumours of a deal with a satellite service provider, while broadcast group Avesco shed 2.5p to 299p despite rumours that one of its division has sold the US rights to the ITV successful quiz show Who Wants To Be A Millionaire to ABC.

SEAQ VOLUME: 1bn

SEAQ TRADES: 69,463

GILTS INDEX: 105.11 +0.22

PUB GROUP SFI has been flavour of the month with brokers. Since reporting buoyant profits 10 days ago, the buy notes have been flocking like Friday night customers to one of its Bar Med outlets. No fewer than five brokers - the house Beeson Gregory and the independents WestLB, Teather & Greenwood, Peel Hunt and Merrill Lynch - have been extolling SFI's virtues. The shares, up 8.5p to 242.5p, could be boosted further if the rumoured bid for part of Greenalls arrives.

THE COMPUTER products distributor Ilion, up 4.5p to 111.5p, could be back in the takeover frame. Last month the company was rumoured to be considering plans to float one of its units on Germany's Neuer Markt to fend off a bid from Dutch rival Landis. However, new whispers suggest that another Continental player, possibly from France, could step in with a bid north of 140p per share. At yesterday's interims Ilion said it would recommend a bid if the price is right.