Market Report: Sainsbury's isn't cheap, but it is on the sale shelf

THE RUMBLE of giant deals echoed through the market yesterday, and Sainsbury was right in the thick of it.

The supermarket group rose 12.25p to 380.25p in fairly active trading. Some speculative buyers muttered that the Wal-Mart takeover of Asda has put the chain in play and that some rivals are dusting off their slide rules.

With a market value of over pounds 7bn, Sainsbury is not on the bargain shelf, but there are a few deep-pocketed players who could could propose a tie- up. The dealers' favourite for a bit of share-shopping at Sainsbury was the beleaguered Kingfisher, down 15p to 722.5p. Over the past few days, the Woolworths-to-B&Q retail empire has been jilted by Asda and seen a couple of key executives go. A pounds 17bn link with Sainsbury would be the ideal way to bounce back.

Sceptics pointed out that Sainsbury is a much less attractive proposition for Kingfisher than Asda. Maybe its stores are the place "where good food costs less" but they are also much smaller than Asda's, limiting the cross- selling potential. Moreover, Sainsbury's non-food offering - one of the key features of Kingfisher's courtship of Asda - is quite small.

But if Kingfisher turns its sights elsewhere - maybe to Europe - Sainsbury could still fall prey to a hungry continental chain such as Dutch group Ahold. Whispers of a link-up with Marks & Spencer, down 2.25p to 355p, were also heard.

Whoever tries to get together with Sainsbury will have to be approved by the founding family, which still controls about 35 per cent of the group. Rumours of a sale of the stake have been around before and were revived yesterday.

All this takeover excitement around Sainsbury reinforced fears of a competitive squeeze on Tesco. The stock was on sale and finished 8.25p lower at 165p - the worst performing FTSE 100 member - on large turnover.

The remaining blue-chips were confused by comments by Alan Greenspan, the US Federal Reserve chairman, and closed slightly lower.

The FTSE 100 finished 11.3 points down at 6,493.6 after bouncing around for most of the day in response to UK and US events. On the domestic front, strong retail sales dented the market's belief in further rate cuts. A rising gilts market failed to underpin stocks.

Across the Atlantic, Wall Street trod water in the wake of Mr Greenspan's cryptic Congressional testimony. The most popular explanation of his words was: "We will hike rates in a fortnight but we might not embark on a monetary tightening spree after that" - an inconclusive message for the market. The undercard had no such qualms, and the FTSE 250 jumped 30.8 to 5,902.5, while the Small Cap put on nine to 2,631.9.

The return of big bid rumours was the blue chips' defining feature. Publisher Reed International surged 20.5p to 446p after its new chairman, Morris Tabaksblat, hinted that a merger, possibly with Dutch rival Wolters Kluwert, could still be on.

EMI, the music group, hit a high note with a 19p rise to 521.5p as the takeover tune was replayed. What dealers want - what they really really want - is for the Spice Girls publisher to be bought by US giants Time Warner or Disney, Germany's Bertelsmann or BSkyB, up 1.5p to 596p.

Reckitt & Colman completed the hat-trick of rehashed bid rumours, rising 27p to 762.5p as the spectre of a takeover, by Unilever or a foreign rival, returned.

The breakdown of talks between Alliance & Leicester and Bank of Ireland sparked a welter of bid talk among the financials. A&L soared 35.5p to 912.5p after buying back 250,000 shares. A Merrill Lynch upgrade also helped. Traders talked of nearly all A&L's peers as potential predators. The acquisitions-seeking Lloyds TSB, up 17.5p to 914p, was a popular option. Bank of Ireland rose 47p to 1,121p on relief at the collapse of the unloved deal and talk of interest from Dutch group ABN Amro.

Retailer GUS did not need any rumours to go up. The shares rocketed 33.5p to 654p on some excellent results and plans to overhaul its Argos retail outfit and boost financial arm Experian with acquisitions. Hopes of a takeover from Shell and a bumper pounds 2bn buyback lifted BG 2.25p higher to 523.5p.

British Biotech was also caught in the takeover rumours' game. The fallen bitechnology hero rose 2.75p to 19p in heavy volume amid whispers of a merger with a rival or management buyout. Rolls-Royce rolled 9.25p higher to 293p after winning more aerospace contracts, while GKN shot 29.5p up to 1,096p on hopes of imminent defence deals.

A review of the media sector by WestLB Panmure caused a few ripples. Saatchi & Saatchi soared 12.5p to 213p as the broker said "buy". Media agency Aegis jumped 6.25p to 135.25p. Rival Cordiant rose 4p to 174p in sympathy. Among the big boys, Panmure fancies WPP, up 8.5p to 543.5p.

Engineer Cookson surged 11p to 203p on whispers that it might buy the laminates division of rival Allied Signal. Industrial distributor Premier Farnell firmed 12p to 258.5p on vague corporate action whispers.

Christian Salvesen, the logistics group, rose another 2p to 135.5p on continued talk of a bid, possibly from Hays, 8p higher at 671.5p. Needleless syringe maker Powderject jabbed up 15p to 845p after solid results. Insurer Britannic jumped 48p to 1,028p.

Property group Slough Estates shed 8.5p to 358.5p after Cazenove and Warburg placed a massive 20.6 million shares - about 5 per cent of Slough's issued capital - owned by a charitable foundation at 348p. Receding hopes of a rate cut shook housebuilders; Bellway was the day's worst mid-capper, losing 19p to 367.5p, while upmarket Berkeley fell 23p to 753.5p and Beazer was 6p down at 201p.

Aim-listed driller Desire Petroleum edged 1p higher to 31.5p after unveiling talks over a share merger with Gaelic Resources, up 0.25p to 1.5p. TV producer West 175 beamed 32p better to an all-time high of 205.5p. It is close to clinching a deal to air three shows on US television.

Construction group Wiggins moved 0.5p higher to 17.5p amid hopes over the redevelopment of an airfield in Kent. Arthur Shaw, 1.12p lower to 5.25p, was hit by doubts over its revolutionary kit to transmit concerts over the Internet.

SEAQ VOLUME: 1.08bn

SEAQ TRADES: 71,203

GILTS INDEX: 109.14 +0.66

NETBET, the Internet bookie, plans to leave the UK market and move to Germany. The offshore-based bookmaker, listed on OFEX less than a month ago, is mooting a transfer to Frankfurt's Neue Markt for high- growth firms. NetBet wants to couple the listing with a $25m fundraising and could be on its way in three months. The money will be spent to boost advertising and strike deals with sports websites, similar to a recent tie-up with Sky Sports.

THE AEROSPACE products maker Bridport is rumoured to be edging closer to a chunky takeover. The company said last month it was in talks with an unnamed party and insiders believe a 125p-per-share bid is near. The offer would be at an attractive premium to yesterday's 106.5p close and would value Bridport at pounds 30m. The identity of the predator is shrouded in mystery, but dealers believe it could be a larger UK rival or a European player.