Market Report: Pru talk puts Barclays back in the spotlight

Market Report

BARCLAYS CAME back to the bid spotlight yesterday as a swathe of takeover rumours among the financials spiced up a miserable session.

The beleaguered high street bank cashed in a 21p advance to 1,877p as some market insiders spread wild gossip of a mega-tie up with the Prudential, down 0.5p to 834p.

Since the departure of chief executive Martin Taylor in November and the shock resignation of replacement Mike O'Neill, Barclays has been tipped as a takeover target.

The prospect of a merger with the Pru to create a pounds 44bn "bancassurer" appealed to some excitable dealing minds, They argued that adding the much sought-after banking link to the Pru's insurance powerhouse could be the ideal start to the career of the insurer's new chief executive Jonathan Bloomer. However, cooler heads pointed to other options. They said that a link-up between Barclays and Royal Bank of Scotland, up 1p at 1,367p, is still the most probable outcome of the Barclays bid game.

Moreover, a Barclays-Pru fusion would require a complete change of tack for the insurer which has been investing millions in its own Egg bank. The Pru is also still digesting the recently acquired fund manager M&G and another huge deal would be rather problematic.

Overall, the stockmarket verdict on the Barclays-Pru story was: unlikely but not impossible.

The bancassurance gossip was only one of many corporate rumours sweeping the sector. The fund manager Perpetual was in demand amid talk that a US buyer could make a move. The shares ended 67.5p higher at 3,302.5p on hopes that consolidation among US banks may prompt one of them to buy Perpetual.

Life assurer St James's Place Capital firmed 4p to 234.5p in good volume on revived talk that the Pru - which owns a large stake - or a rival insurer might launch an offer.

The old favourite rumour of a bid for Legal & General was as strong as ever. The insurer finished 3p up to 176.25p, although mooted predator Lloyds TSB lost 18.5p to 834.5p.

The rest of the market reacted with remarkable apathy to another three- figure fall on Wall Street. The FTSE 100 closed 37.3 lower at 6199.5 as investors remained on the sidelines ahead of the long weekend. Pessimists were a bit unnerved by the fact that the blue-chip index closed below the psychologically important 6,200 level. Some bears believe that the breach of that barrier could cause a correction to around 6,000. The arcane charts also seem to confirm this theory. The second liners fared much better, with the midcap firming 15.3 to 5667.7 and the Small Cap scraping through with a 1.8 rise to 2551.7.

Tesco shone among the big-hitters. The supermarket chain jumped 8.75p to 181.5p after the influential broker Warburg Dillon Read upgraded to a "strong buy" and set a 215p target price. Warburgs believe the stock is undervalued and due for a big rebound. The high number of Tesco shares traded, more than 34 million, prompted some traders to speculate that there was more to Tesco than a simple upgrade. Vague talk of a new Internet shopping service and rehashed rumours of a tie-up with Marks & Spencer, up 6 at 394.5p, did the rounds.

Sainsbury, results next week, rose 8.75p to 383p in sympathy but Somerfield missed the party, shedding 14p to an 12-month low of 288p as bears talked of poor trading and fading bid prospects. Fashion retailer Matalan fell 1p to 831,5p after its top executives and one of its major shareholders sold a line of stock. The company denied rumours of an impending profit warning. Rival Next ran into profit-taking and lost 33.5p to 699.5p.

GKN led the engineers' charge. The Midlands-based giant soared 38.5p to 991p after a bullish CBI manufacturing survey and amid talk of a large defence contract win. Invensys, results next week, followed suit with a 9.75p rise to 282.25p. Rival FKI also boosted sentiment in the sector with great interims and a pounds 32m US acquisition after posting great interims. The stock rose 17p to 184.5p.

No such luck for Energis. The telecom group was dumped by US investors and fell 78p to 1,481p. Mobile phone stocks were hit by the latest cancer scare. Cellnet co-owner BT shed 21p to 1,036p, Vodafone slipped 11p to 1,213, Orange was squeezed 8.5p lower to 864.5p, while Cable & Wireless, a big shareholder in One2One, gave up 16p to 761p.

Carlton blinked 21p lower to 510.5p following a raft of forecast reductions after Wednesday's figures, while National Power lost 15.25p to 468.5p after Goldman Sachs hinted it might cut its numbers after the results.

Land Securities bucked the negative post-figures trend and soared 42.5p to 864p as brokers upgraded after Wednesday's numbers. Good results from Pillar Property, up 16.5p to 330.5p also helped the sector. MEPC, figures next week, exploited the positive mood and rose 22.25p to 512.25p.

Oil explorer British Borneo dug a 9p rise to 165.5p as Cazenove said "buy" and vague bid speculation returned.

The sausage skin maker Devro sizzled 5p up to 132.5p. Punters are devouring the shares before next week's figures as takeover rumours grow .

The smaller fry were awash with bid talk. Petrol retailer Save firmed 2p to 40p in high volume amid renewed talk of a takeover or of a bullish trading statement.

Treatt, the flavour maker, surged 25p to 175p on whispers that recent good results have sparked the interest of some of the big food producers. Courier group United Carriers rose 2p to 28p. A bid, possibly from rival Nightfreight, could be near. Integrated Asset Management jumped 4p to 39.5p on talk of imminent acquisitions. An unlikely shareholder, the London Borough of Croydon, yesterday sold its stake in IAM.

Linton Park, the engineering-to-food mini conglomerate, plummeted 37.5p to 325p after a profits warning, while troubled Business Post Group lost 32.5p to 402.5p.

SEAQ VOLUME: 1.1 billion

SEAQ TRADES: 69,313

GILTS INDEX: 107.58 -0.55

THE CONSTRUCTION group Birse is tipped to link up with all-conquering Manchester Utd. There is a strong whisper that the builder has won a contract to redevelop part of Old Trafford, the home of the treble-winning football team. Insiders believe an announcement on Birse's role in the revamp of the "Theatre of Dreams" is due soon. The award should help Birse's shares, which have been languishing near their all-time low of 6p for the past few months.

SHIELD DIAGNOSTICS is thought to be close to a major deal.

The biotech company, which yesterday completed its merger with Norwegian rival Axis, should unveil a distribution agreement for its revolutionary test for heart disease over the next few weeks. Shield's partner is believed to be a large US pharmaceutical or biotechnology group. Shares in the UK company rose 7.5p to 442.5p in anticipation of the deal.