Market Report: Highland has a fling as market tumbles

THE MARKET yesterday feasted on food, drink and clothes as a swathe of bid rumours shed some light on a gloomy session.

As a nervous FTSE 100 posted a hefty fall, traders turned to the comfort of bid speculation in Highland Distillers, Storehouse and Safeway.

The newest whispers surrounded Highland, the producer of the Famous Grouse scotch whisky. The illiquid stock jumped 15.5p to 265p as a surge in buying interest was compounded by a shortage of shares.

Brokers said that a good deal of hot money is chasing Highland amid hopes of a corporate deal. The Scottish company has an intriguing cross-shareholding with its French rival Remy Cointreau and some people believe that the time is right for a more meaningful relationship.

Remy owns over 9 per cent of Highland, while the Scots have around 2 per cent of the French cognac group. The two have recently signed a global distribution agreement and some dealers believe that a full-blown merger, perhaps followed by some watchdog-pleasing disposals, is not impossible.

The other gripping market tale involved recent bid target Storehouse. The owner of BhS and Mothercare soared 14.5p to 141.5p as punters whispered of an imminent break-up approach by a group of US investors. The rumoured trade bidders such as Debenhams and Littlewoods have ruled themselves out and the market is convinced that US funds, like the acquisitive KKR, are ready to pounce.

Well-informed dealers said that a US consortium has been scouring the City to find a suitable front man for their bid - likely to be pitched at around 160p. If the Americans win the battle for Storehouse, they are likely to separate, and possibly spin off, BhS and Mothercare, unlocking some value for shareholders.

As for Safeway, the stock rose 4p to 249p boosted by talk of takeover discussions with deal-hungry Kingfisher, down 5p at 750p. The rumour of a cloak-and-dagger meeting between Kingfisher boss Sir Geoff Mulcahy and Safeway chairman David Webster was denied, but the market could not resist the thought that something is afoot. Optimistic traders talked of a cash- and-paper bid at around 275p per share, while the sceptics said that Sir Geoff is more likely to buy in Europe.

The overall market had a volatile day, finishing sharply lower on a mixture of technical reasons and US rate worries. The FTSE 100 plunged 98.6 to 6,307.1 as some of the big index- tracking funds pushed through large sell deals ahead of today's completion of the Vodafone/Airtouch mega merger.

From this morning, the mobile phone giant's weighting in the FTSE 100 is nearly doubled from 3 to around 6 per cent and the index-mirroring trackers need to adjust their portfolios.

They did just that yesterday, frantically selling the other blue-chips in huge basket trades in order to free up the cash to buy Vodafone. US investors added to the selling pressure by dumping Vodafone because the new enlarged group will only have a secondary listing on the New York market. The heavy two-way pull left Vodafone 21p lower at 1,269p with a gigantic 181 million shares traded.

Vodafone's rival Orange firmed 19p to 924p ahead of tomorrow's publication of second-quarter UK mobile- phone subscribers. Broker Dresdner Kleinwort Benson is predicting a huge jump of around 390,000 customers and has upgraded its earnings forecasts.

The Prudential was the day's best blue-chip amid talk of corporate action. The stock rose 27p to 929p on rumours that it might buy Bermuda-based fund manager Global Asset Management or a UK bank. Royal & Sun was up 10p to 572.5p on hopes of a strike from CGU, down 17.5p to 912p, or a European rival.

National Power surged 9p to 464.25p on revived talk of a US bid and new rumours that it might have found a chief executive. Gas group Centrica, flat at 144p, was heavily traded on speculation it might announce the pounds 1bn-plus purchase of the AA. Among the fallers, Blue Circle crumbled 23p to 431.75p after Monday's downbeat trading update, while Bass poured 35.5p lower to 878p after raising its investment in Punch Taverns' increased bid for Allied Domecq's pubs. Rival bidder Whitbread, down 10p at 1019p, is under pressure to up its bid.

The smaller indexes were sheltered from the sell-off in their bigger brother and closed only modestly lower. The FTSE 250 ended 17.8 down at 5,851.4, while the Small Cap posted a 2.6 fall to 2,651.2.

JJB Sports scored a 17.5p advance to 310p. Its trading statement was bad but not disastrous and the market was relieved.

Car distributor Inchcape motored 3.5p ahead to 63.5p amid positive brokers' noises and whispers of further chunky disposals. Paper group DS Smith posted better-than-expected numbers and rose 5.5p to 150p. Rival Rexam jumped 7.5p to 258p in sympathy. No such luck for Williams. Fear that a takeover by US rival Tyco is off caused a 16.75p slide to 406.25p. Engineer TI settled 22.25p lower after Standard & Poor's fretted about its debt and lowered its credit rating. Rival Senior plummeted 10.5p to 130.5p as brokers downgraded after its recent profit warning.

Whatman shrugged off its rivals' troubles and soared another 210p to 1,125p after a leading broker went bullish on its recent deal to transport DNA. Recruitment tiddler ATA crashed 30p to a lowest-ever 57.5p after a profit warning, while Premier Oil firmed 0.75p to 18.75p on returning bid talk.

SEAQ VOLUME: 1.16BN

SEAQ TRADES: 76,455

GILTS INDEX: 106.66 +0.02

JUST GROUP, the owner of rights to cartoon and children's TV characters, is believed to be close to announcing a sizeable deal. According to the rumour, AIM-listed Just has just clinched a $5m contract to license its Jellabies creations to several US companies, including footwear giant Angelette and clothes seller Haddad.

The coup could be announced before next week's results, which should show that Just has returned to the black after last year's pounds 2m operating loss.

VOYAGER 2000, an AIM-listed cash shell, could soon announce a reverse takeover by a hi-tech group. The company, where entrepreneur Stephen Dean owns a sizeable stake, is thought to be in advanced talks with a couple of privately-owned information technology groups.

One of the contenders is understood to be a high-growth software company eager to gain a stock market quote. The size of the deal is a mystery but dealers guess it is around pounds 10m.