Market Report: Rentokil Initial stars in a falling market

RENTOKIL INITIAL and British Steel were the stockmarket's odd couple yesterday. The ultra-modern cleaning and pest control group and the old-fashioned bastion of the UK industry go together like chalk and cheese but yesterday they were the stars of a falling market.

As the market plunged and then partially rebounded, the two ill-matched companions rose on separate whispers of corporate action. Rentokil Initial soared 11.25p to 250p on huge turnover of more than 35m shares.

One reason for the jump was obvious. Rentokil has been heavily oversold since failing to reach its 20 per cent growth target last year. The company compounded its plight earlier this month when it said that it would miss its mythical threshold in 1999 as well. This double whammy triggered a 50 per cent plunge in the shares from their February peak. At these levels, the stock was certainly due for a rebound, and some option-related buying provided additional support. However, the dealing boys were convinced the rally was more than a technical quirk.

They said the high turnover could suggest stakebuilding by an overseas player. A large US investor with a Buffett-like penchant for undervalued companies was the most popular choice. Braver traders spoke of interest from one of Rentokil's foreign rivals. However, a hostile takeover is highly unlikely as the Danish group Sophus Berendsen holds a chunky 35 per cent stake.

British Steel jumped 3p to 141p on talk that it might soon spend its pounds 430m cash pile. Some market players think it is eyeing the tubes unit of the German giant Mannesmann.

The deal would have a certain logic. The German company wants to divest its industrial businesses to become a pure telecom play and British Steel could do with some European exposure. The acquisition of Mannesmann's tubes subsidiary, which has sales of over DM3bn ( pounds 1bn), could create some anti-trust problems, but dealers shrugged off these concerns.

The rest of the market was in copycat mood and tracked Wall Street all day. The FTSE 100 finished 72.8 lower at 6,249.3. The blue-chips suffered heavy falls in the morning due to the overnight slump in the Dow. But after having been down as much as 137 points, a sharp rebound in New York helped London's leading index to pare its losses. The second liners had no such luck and finished near their daily lows. The FTSE 250 fell 56.4 to 5,653.7, while the Small Cap was down 13.1 to 2,557.4.

Rumours of big deals continued to dominate blue-chips trading. Reed International, the Anglo Dutch publishing giant, fell just 2.5p to 485.5p as talk of a big merger resurfaced. The Dutch rival Wolters Kluvert is seen as a favourite but some traders also pointed to US or UK partners, such as Emap, up 3p to 1,303p.

The other mooted mega-merger involves Shell, up 0.75p to 460.75p, and BG, down 3.75p to 354.25p. The rise in the oil group despite a subdued crude price - which sent BP Amoco down 18.5p to 1,131p - and the good volume in the gas company were seen as signs that something is afoot.

Allied Domecq was a rare riser, frothing 25p higher to 576.5p on hopes of a bid war for its 3,500 pubs. Bass, down 24p to 911.5p, and Punch Taverns are apparently looking at a pounds 2.8bn joint bid to trump Whitbread's pounds 2.4bn offer. Whitbread rose 23p to 1,040p after saying it wants to sell its breweries to Dutch rival Heineken and buy back 10 per cent of its shares.

British Airways took off after last week's turbulence. The airline put on 12p to 469.5p as results met the market's low expectations. Brokers led by Morgan Stanley welcomed the new strategy.

Analysts savaged some big names. Sainsbury was the day's worst blue chip, losing 19.5p to 380p after Credit Lyonnais Laing said "reduce".

Energis lost 81p to 1,600p after Lehman Brothers said the shares are expensive given the telecom group's "modest growth". Misys, the computer group, plummeted 24.5p to 540.5p after Goldman Sachs cut its price target to 600p from 630p and Teather & Greenwood downgraded to "sell".

Invensys, the old BTR Siebe, was down 12.5p to 278.5p amid negative talk on the sale of its automotive division. The new arrival Anglo American dived 109p to 3,080p after placing over 12m shares at 3,180p. The fall came despite some switching from rival miner Rio Tinto, 48p lower at 964p.

Stagecoach travelled 10.25p lower to 203.75p due to some roguish late trades, but Nycomed Amersham benefited from some overpriced Sets deals and finished 19p up at 461p. If the price stays there, the healthcare group could return to the FTSE 100 in two weeks' time. The construction group Hewden-Stuart built a 4.5p rise to 140.5p on vague bid rumours and a positive comment from WestLB Panmure.

The aerospace sector was active. McKechnie flew 14.5p higher to 456.5p after the pounds 164m buy of US parts-maker Western Sky Industries. The sector tiddler Bridport soared 105p after unveiling a management buyout bid. The rumour is that shareholders will not accept anything below 130p. BTG, the intellectual property company, firmed 2.5p to 284p on confirmation of a semiconductor deal with Hitachi.

First Choice lost 16p to 200p amid regulatory jitters over its deal with Airtours.

The minnows had a lively day. City of London PR jumped 10p to 89.5p after unveiling good results and plans to invest in an Internet venture. Miner Ivernia West drilled a 5p rise to 50p after announcing the start of production at its Lisheen zinc mine.

Polymasc Pharmaceuticals climbed 5p to 51.5p after agreeing a paper offer from Valentis of the US. Jarvis Hotels booked in a 6p to 154.5p as a French bid is said to be near.

Budget carrier AB Airlines crashed 12.5p to 20p after reporting heavy losses and warning that funds are decreasing fast. The drug group Cortecs junked 4.5p to 15.5p after scrapping its star brittle-bone disease product. Watch retailer Watch2Watch clocked a 6.5p rise to 36.5p on its debut on Ofex.

SEAQ VOLUME: 1.14BN

SEAQ TRADES: 77,173

GILTS INDEX: 108.31 +0.34

TRY, the construction minnow, could be heading for the stockmarket exit.

The shares rose 1.5p to a five-year peak of 29.5p on strong whispers that a management buyout is in the offing. The talk is that the group's board is planning to offer shareholders, including the activist fund manager PDFM, a cash handout of 45p per share. The chunky premium would value Try, which last year had profits of pounds 3.4m on sales of pounds 139m, at pounds 31m.

BID RUMOURS are swirling around Thorntons. Some hefty trading in the stock has sparked talk that the troubled chocolate maker could fall into foreign hands. The Swiss sweet giant Suchard is rumoured to be having a look. The overseas interest is believed to have been heightened by the recent slide in Thorntons share prices. The stock has fallen from its 12-month high of 269.5p to yesterday's 188.5p after the company issued a profit warning.