MARKET REPORT: House of Fraser takeover talk stirs lethargic punters

A quiet, uneventful session usually spawns a few takeover bid stories as traders struggle to generate investment interest. With the stock market deep in pre-Budget lethargy retailers found themselves the centre of attention and House of Fraser, the struggling department store chain captured much of the speculation.

The shares climbed 8p to 144.5p as stories continued to circulate that Burton, down 1.5p to 143p, was preparing an assault.

Burton is trading well and last week demonstrated its success with a 54 per cent profits jump to pounds 151.6m. John Hoerner, called in as chief executive four years ago to turn round the then ailing group, declared: "This is not the beginning of the end; it is the end of the beginning".

With Debenhams, the group's department store chain thought to be squeezed for space Fraser's 50 stores could look attractive.

So a bid from Burton at least has the merit of logicality. And Fraser looks vulnerable. Its shares have failed to perform. Floated at 180p 30 months ago they have been as low as 135.5p.

Last month it disclosed half-year losses of pounds 13.6m and said it intended to close some of its stores. New management has been drafted in, led by John Coleman, a Texas Homecare veteran.

Sears, another retailer which has lost its way, added 2p to 89p in busy trading with Fraser said to be a possible target. But Sears is also seen as vulnerable to a break up-strike.

Next and Body Shop also made headway but once again Storehouse found the going difficult, falling 5.5p to 274p, a year's low. Interim profits are due next week. They are likely to emerge 8 per cent higher at pounds 36m before exceptional charges take their toll.

The market failed to hold early gains and spent the rest of the session drifting aimlessly. Fears of higher interest rates and a little selling in New York added to the Budget uncertainty.

With the debacle over the Crest computerised settlement system contributing to the air of indifference Footsie slipped 7.4 points to 3,926.9.

As the market closed there was a gentle buzz of excitement as a series of big trades went through. Turnover was lifted to a respectable 852.8 million with Hanson (71.62 million), British Gas (64.69 million), Cookson (22.11 million) and BT (21.79 million) dominating the action as a series of delayed trades appeared on market screens.

There was speculation a big investment house had cut its equity exposure. Bed and breakfast deals, often responsible for big late trades, were not a significant feature of the activity.

British Gas flared 6p to 198.5p on UBS support, hopes of a North Sea settlement and lingering bid speculation. BT edged forward 1.5p to 360.5p, largely on NatWest Securities interest.

The investment house is, for the first time for 30 months, positive, moving its stance from hold to add.

East Midlands Electricity, as the Dominion Resources bid duly arrived, rose 11.5p to 622.5p. Northern Ireland Electricity, not regarded as a prime takeover candidate, fell 9p to 357.5p as SBC Warburg said take profits.

Lasmo rose 8.5p to 210p. At a New York investment presentation chief executive Joe Darby said the group expected to produce 200,000 barrels of oil equivalent a day next year, a 12 per cent increase. The higher level should be maintained for five years.

Allied Domecq dipped a further 7p to 447p and Guinness strengthened 8p to 453.5p on continuing speculation about LVMH's 21 per cent stake.

Vendome, the luxury goods group, fell 16p to 544.5p as ABN Amro Hoare Govett trimmed its forecasts by pounds 10m to pounds 280m and pounds 305m.

Granada gained 6.5p to 884.5p. Lehman Brothers believes the shares are a buy up to 950p. It expects year's results, due next week, to come out at pounds 450.9m.

Smiths Industries, ahead of an institutional presentation hosted by Henderson Crosthwaite, improved 7.5p to 797p and Cobham, meeting Henderson today, held at 584.5p.

Ladbroke, ahead of a trading update, cantered 2.5p higher to 198p; Mercury Asset Management, the fund manager, gained 35p to a 1,163.5p peak on talk of corporate activity.

Boardroom changes at luxury goods group Ronson left the shares down 3p at 21.5p and Maid, the on-line information group, fell 7p to 175.5p on talk of a one-for-eight rights issue at 190p.

Insurance group Wellington returned at 142p, against a 121p suspension.

Taking Stock

Alpha Airports, the inflight caterer and airport services group, rose 8.5p to 113p in busy trading, prompting speculation Mohamed Al Fayed had increased his stake. Last week the Harrods chief acquired 25 per cent from Granada, paying 125p a share. He is thought to want to expand Harrods' activities through Alpha and is probably moving his interest to 29.9 per cent. A link with BAA is considered likely.

Ropner, the engineering and shipping group, has emerged as the target for Jacobs which has built a near-10 per cent stake. Takeover talks are taking place. Scruttons, the ferry and security group, could be pulled into any deal with Ropner owning 29 per cent of its capital. Ropner gained 6p to 107p; Jacobs eased to 71p and Scruttons held at 290p.