Market Report: Royal & Sun stock rides high on talk of Allianz strike

IS THE troubled Royal & Sun destined to fall into foreign hands?

The insurer was excited by talk of a takeover by the German giant Allianz, just as rival Legal & General continued to rise on the back of continued bid speculation.

The prospect of a Teutonic white knight riding to the rescue of the embattled Royal & Sun left the shares 12.5p higher at 514p in reasonable volume of over 11m.

The rumour was lent added impetus by some bullish comments by the Allianz chairman Henning Schulte-Noelle. The German insurer boss wants to boost Allianz's presence in the world's top markets and the UK looks like an ideal territory for acquisitions.

Allianz is underweight in Britain where its main investment is Cornhill Insurance. Cornhill is a highly regarded company but it is too small to fulfil the German group's global ambitions. The acquisition of Royal & Sun would dramatically increase Allianz's UK presence and would provide it with a huge distribution channel.

A takeover would also offer some respite to Royal & Sun long-suffering shareholders.

Since the 1996 merger between Royal Insurance and Sun Alliance, the company has been dogged by poor trading results, strategic blunders and culture clashes. These problems have left the share price in the doldrums. Over the past 12 months, Royal & Sun has underperformed the index by over 20 per cent, leaving a trail of disappointed investors.

However, Royal & Sun, which is capitalised at over pounds 7bn, retains a good brand and could turn into a great turnaround story under the Germans' control. As one expert said: "Allianz would be daft if they were not looking at Royal & Sun."

The insurance sector continued to be in favour as buyers moved in for Legal & General. The stock settled 10.75p higher at 187.75p with more than 38 million shares traded. The huge turnover suggested that the market believes that a bid, possibly from Lloyds TSB, down 31.5p to 868.5p or the French insurer AXA could be around the corner. The other mooted bidder is Barclays, up 29p to 1,916p as brokers upgraded after Thursday's cost cuts. Some believe that the slash'n' burn measures will clear the decks for a merger with Royal Bank of Scotland, down 45p at 1,342p.

The bid rumours provided some glimmers of action in a dull day for the market.

The FTSE 100 index closed 15.1 lower at 6,353.1. An uncertain opening on Wall Street did little to shake the traders from their pre-weekend apathy. The second liners displayed the same sort of laziness, with the mid cap ending 16 down to 5718.3, while the Small Cap finished 5.4 higher at 2566.1.

Hopes of corporate action spurred a few blue-chips. Securicor rang up a 16.5p gain to 605p on continued hopes of a sale of its Cellnet stake to BT, up 1p at 1137p.

Shell flared 9.25p up to 445p amid talk of a strike at BG, up 0.75p to 358.75p. Firmer crude prices also helped the Anglo-Dutch oil giant as well as BP Amoco, up 21.5p at 1138.5p.

BAT shot 31p up to 579.5p after the blue-blooded broker Cazenove said "buy", while the transport group P&O cruised 21.5p higher to 921.5p after telling shareholders that the cruises and ferries are doing well.

Drugs were given a shot in the arm by talk of a mega-merger between the US groups Warner Lambert and Schering Plough. Domestic rumour-mongers defrosted speculation of tie-up between Glaxo Wellcome, up 7p at 1,816p and SmithKline Beecham, 8.5 higher at 802.5p. AstraZeneca made its own luck telling a stormy annual meeting that first quarter drugs sales were up 19 per cent. The stock put on 39p to 2,522p. Thames Water was one of the worst-performing blue-chips, leaking 33p to 917p as investors fretted over next week's results. British Airways landed 12.5p lower at 448.5p as dealers worried about forthcoming figures.

The pub group JD Wetherspoon soared 26p to a 12-month peak of 316.5p. Some insiders talked of aggressive buying by Goldman Sachs exacerbated by a shortage of stock. However, others said that Wetherspoon could be targeted by Bass, down 3.5p to 940p, if the beer giant fails to buy the pubs owned by Allied Domecq, flat at 560.5p.

Vague talk of a bid lifted the oil explorer British Borneo. It closed 11.5p up to 165p as Enterprise Oil, down 2p to 390p, was said to be having a look.

Returning speculation of a takeover helped Rank to a 14p rise to 234p and the glass-maker Pilkington to a 3p increase to 75.5p. The airport operator TBI got ready to welcome its new shareholder George Soros with a 6.75p take-off to 105.75p.

However, fading bid speculation sent the security group Williams 20.75p lower to 378p. The plasterboard maker BPB was 16.5p lower at 300.5p for the same reason. Airtours flew 14p lower to 492.5p despite shareholder approval of its bid for First Choice, down 2p at 218p.

The tiddlers had a lively session. Deanes Holdings, a furniture maker, was suspended at 1.75p after a 0.5p rise. The AIM-listed company wants to clarify its financial position before trading resumes.

Nottingham Forest scored a 7.5p advance to 37.5p amid growing rumours of venture capitalist Doughty Hanson. Rival Birmingham City lost 6p to an all-time low of 31.5p after missing out on promotion.

Evans of Leeds, the property minnow, rose 17p to 119.5p after the founding family announced a 125p-per-share bid to take it private.

SEAQ VOLUME: 921.7m

SEAQ TRADES: 74,631

GILTS INDEX: N/A

THE CASINO operator London Clubs International rolled 2p higher to 150.5p yesterday amid renewed talk of an overseas bid.

The whisper, which has been around before, is that a Far Eastern buyer could have a go at around 200p to 220p per share. The offer would value London Clubs at around pounds 321m. The company owns gaming houses in the UK, Bahamas and the Middle East and last year had profits of pounds 27m on sales of over pounds 167m.

KS BIOMEDIX, a biotechnology tiddler, hit an all-time high of 400.5p after a 26p jump on rumours that some positive test results are on their way.

The company is very cautious on the speculation but insiders believe that KS could soon have some positive news on some of its star compounds.

According to the market talk, KS could shortly announce some progress on some cancer and arthritis drugs.