Market Report: Perpetual motion as buyers search for corporate deal

PERPETUAL was in motion yesterday as speculative buyers scoured the financial sector in search of the next corporate deal.

As the market inched closer to its all-time record, the fund manager was one of the midcap's best performers, adding over 5 per cent on whispers of a takeover or a major link-up with one of the sector's giants.

The stock ended 175p better at 3,482.5p, helped by removal of a stock overhang.

A popular theory was that the company might soon unveil a joint venture with a large bank. Goldman Sachs and Morgan Stanley were mentioned. Perpetual's funds could be a useful add-on to the financial might of the recently floated Goldmans and could help Morgan to make inroads in the UK.

Braver minds said that Perpetual's recent underperformance could trigger an outright bid at up to pounds 55 per share.

Last month, the company reported the first fall in interims profits for around 10 years and warned that second half sales would be subdued.

The slide in profits was due to a series of wrong investment decisions in the run-up to last autumn's stockmarket crash. Market watchers believe that the price fall that ensued could tempt a predator.

Potential bidders could include US houses Goldman - eager to spend its post-flotation cash - Morgan Stanley and Close Brothers. The Prudential, down 18.5p to 880.5p was also considered a possibility. However, the Pru is still digesting the pounds 1.9bn purchase of fund manager M&G and it is more likely to go for part-owned insurer St James's Place, up 9p to 252p. Alliance & Leicester, down 1p to 918p after buying back some more shares, was also talked about as a Perpetual suitor, especially after the breakdown of the merger with Bank of Ireland.

As for the price tag, the M&G example pointed at somewhere between pounds 39 and pounds 55, valuing Perpetual at pounds 1bn-pounds 1.5bn.

Any takeover will have to be agreed by chairman Martyn Arbib who, together with his associates, controls over 40 per cent of the shares.

The overall market had a strong session as a flurry of takeover rumours encouraged some large buying. The FTSE 100 ended 53.4 higher at 6,581.2, a mere 17 points from its April peak. The blue-chip index floated over its all-time best for most of the morning but was forced downwards by a weak Wall Street in the afternoon.

The second liners were in good form, with the FTSE 250 closing 33.8 better at 5947.4 and the Small Cap finishing 8.8 up to 2647.8. Both the undercard indexes are close to all-time records and could get there before their bigger brother.

BT soared 48p to 1,106p. Sector strength and some above-price deal on the order book appeared to be behind the gain. However, some dealers speculated about a large deal. Hopes of a buyout of the Cellnet stake owned by Securicor, down 5.5p to 551p, were also present.

The big hitters were buoyed by deal-talk. Retailer Kingfisher is tipped for a European shopping expedition. The stock rose 12.5p to 749.5p on speculation of a tie-up with German do-it-yourself chains Hornbach or Obi. However, both companies talked down the chances of a deal. Sector peer MFI rose 3p on reports of interest from Asda conqueror Wal-Mart.

Reuters caught the Internet bug and logged on to a 35p rise to 903.5p. The rumour is that the company wants to link its Instinet on-line broker with web portal operator Yahoo! to reach retail investors.

Internet darling Dixons plummeted 55p to 1,172p on fears that its Freeserve web provider will be challenged by US giant American Online.

The gas company BOC ballooned 31p better to a best-ever 1,262p after snubbing two bids - by US rival Praxair and an alliance of France's Air Liquide and Air Products of the US. The jilted bidders could come back with a hostile strike of more than 1,420p a share.

SmithKline Beecham shot 9p up to 872.5p on revived rumours of a tie-up with Novartis, while BG rose 11.75p to 384p as Merrill Lynch upgraded forecasts and talk of a takeover by Shell persisted.

Allied Domecq frothed 6p higher to 618.5p as a bid war for its pubs broke out. Punch Taverns confirmed that it would trump Whitbread's pounds 2.4bn all- share offer with a cash bid. Bass, down 8.5p to 965p, will buy around pounds 1bn-worth of pubs from Punch if it wins the Allied battle

United Utilities surged 27.5p higher to 763p on returning whispers of a US bid, while Stagecoach motored 8.75p ahead to 239.5p as US investors climbed aboard after its Coach USA acquisition. Further deals are expected soon.

Hopes of development on its Symbian phone venture lifted Psion 37.5p higher to 880p. Acquisition vehicle Wassall jumped 9p to 220.5 amid rumours of a deal, possibly in the food sector. Next firmed 28p to 726p despite dropping out of the FTSE 100 and going ex-dividend. The retailer is rumoured to be having a bumper season at expense of Marks & Spencer, down 1p to 361.5p.

British Borneo flared 7p higher to 202.5p on rumours of a deal with French oil giant Elf, while buns-to-guns conglomerate Tomkins jumped 9p to 275p amid whispers of a pounds 700m spin-off of its bread division. The car dealer Inchcape spluttered 92.5p lower to 67p after the deadline for its 100p special dividend.

Biotechs were active. Powderject shed 10p to 812.5p on reports that it faces competition for its needleless syringe. The company reaffirmed that it is the only one allowed to produce the instrument. Rival Medisys injected 3.75p to 25p after buying the rights to a safety syringe. Retractable syringe-maker NMT retracted 10p to 184p on the news. Biotech minnow Core rose 4.5p to 36p after unveiling merger talks. Oil driller Emerald Energy firmed 1p to 5.75p on hopes of a positive finding in its Colombian fields. Port operator Clydeport soared 31.5p to 262p after confirming talks over a property development in Glasgow. Bank of Scotland is rumoured to be Clydeport's financial backer.

Lynx Printing rose 18p to 187.5p on vague bid talk, but clothes-maker Frank Usher lost 23.5p to 86p after warning that poor demand will hit profits.

Telecom tiddler Ashpool debuted on OFEX with a 0.5p fall to 69.5p.

SEAQ VOLUME: 1.08bn

SEAQ TRADES: 78,329

GILT INDEX: N/A

CHEMRING, a maker of civil and defence equipment, is back in the bid frame. Shares firmed 1p to 148.5p yesterday amid whispers of a 200p- per-share bid . Chemring, whose products include windproof matches and marine distress signals, broke off talks with an unnamed financial buyer in March. Since then, the company has announced a sharp increase in orders. Some dealers believe a bidder - a financial group, or one of Chemring's rivals - is sniffing around.

CELSIS INTERNATIONAL could be the next company to join the consolidation frenzy sweeping the biotechnology sector.

The company makes instruments to detect biological contamination. It was founded by biotech entrepreneur Chris Evans, who still holds around 11 per cent. Experts believe that Celsis, which last year made a profit of pounds 400,000, could gain from a merger with a rival group.

Talk of a deal lifted the shares 1p to 26.25p yesterday.