Market Report: Takeover fever fails to stem market retreat

THE MARKET is convinced that a major international deal is planned. As equities continued their ragged retreat, attention was focused on Unilever and J Sainsbury.

The Anglo-Dutch detergent and food giant was said to be about to descend on Revlon, the US beauty business, while Sainsbury was rumoured to be in the sights of Royal Ahold, the highly successful Dutch supermarket chain. Unilever shares dipped 10p to 555p and Sainsbury rose 20p to 390p.

Besides the thought of what could be an expensive takeover, Unilever shares had to contend with caution from Lehman Brothers, the US investment house. It said: "The weakness in the Latin America region and collapse in Russia will dampen the group's organic growth in 1999, especially in the first half."

The major retailers are encountering increasing bid speculation, with Ahold, Wal-Mart of the US and others keen to expand in Europe and the UK.

Ahold was quick to pour cold water on the Sainsbury story. It was, it said, "unfounded". Ahold admits it is interested in the UK, as well as Germany, but it said: "There are only a few players in those markets and they are far too expensive."

Sainsbury, now capitalised at pounds 7bn, is much cheaper than it was in the autumn. Since then its shares have tumbled from 580p and it could look vulnerable if a determined strike materialised.

It was not, however, the only supermarket chain in the Dutch bid frame. Tesco and Asda were also caught in the speculation, with Tesco, underlining the growing retail internationalism with its move to set up shop in South Korea, up 4.5p to 170.5p and Asda 2.5p better at 153.5p. Their defensive appeal also helped the supermarket chains.

Hard pressed Booker, the cash-and-carry chain that is also seen as a Wal-Mart target, firmed 2p to 62.5p.

Footsie was at one time down 92.2 points; it closed 43.8 off at 6,016.7, its lowest for seven weeks. Nine trading days ago it hit a 6,335.7 peak.

The worsening situation in the Balkans is beginning to have an impact on sentiment, and further weakness in New York also took its toll. Turnover was again high, nudging 1.3 billion shares, as fund managers indulged in a little window dressing ahead of their first-quarter valuations. The supporting indices also weakened; the mid cap fell 40.1 points to 5,435.5 and the small cap 13.1 to 2,382.

As is often the case when shares are under pressure, the takeover rumour mill becomes hyperactive. Pilkington, the struggling glass group, firmed 2p to 67.5p as speculation returned yet again. Rexam, the packaging group, firmed 4p to 209.5p.

Bid action occurred on the undercard. Stanley Leisure, the bookie, popped up as the bidder for Capital, the casino group. The approach lifted Capital 8.5p to 75p and Stanley 10.5p to 294p.

Gremlin, the computer games group, flicked 2.5p lower to 117p as Infogrames Entertainments, a French group, launched an agreed 120p-a-share offer. Granada, expected to bid for Scottish Media, gave up 61p to 1,143p. SM was little changed at 864p.

Internet fever blew hot and cold. WH Smith surfed 67.5p to a 657.5p peak after duly confirming its arrival on the World Wide Web - an Internet service agreement with Microsoft and BT. The retailer plans free Internet access and a wide range of education and entertainment content.

But Dixons, which has surged on its Freeserve Internet offer, had a volatile session, at one time nursing a 152p fall. The shares closed off 113p at 1,239p in busy trading.

Cable & Wireless, following an investment dinner with Henderson Crosthwaite, firmed 13p to 743.5p. The telecoms group is considering floating or selling its One-2-One mobile phone operation that it owns with MediaOne, the US group merging with Comcast. It is suspected that MediaOne will unload most, if not all, of its UK interests, which include a 30 per cent stake in Telewest Communications, the cable group, off 12.75p at 250.5p.

P&O, the shipping line, continued to win friends following its results and planned disposal programme. The shares made the Footsie leader board, steaming ahead a further 56p to 916.5p.

Bass was lowered 30p to 881p on fears that arch rival Scottish & Newcastle is preparing to roll out a profits warning. Scottish fell 10p to 665p, just above its 12-month low, and Whitbread lost 17.5p to 944.5p.

RMC, the cement group, shrugged off negative comments from Credit Lyonnais, firming 4p to 753p. Dresdner Kleinwort Benson said to sell EMI, lowering the shares 9.75p to 424p.

Fashion retailer Next, following its results, fell 23.5p to 718p: Warburg Dillon Read suggested a 900p target.

BAA, the airports group, rose 33p to 675p following an upbeat meeting. With talk of positive passenger growth - the company appears to be banking on 2.5 per cent a year for the next 20 years - the shares attracted analytical support. Credit Lyonnais shifted its stance from sell to buy. SG Securities reiterated its buy advice; it said: "BAA should increasingly be seen as a cheap retailer rather than an expensive utility". Its target is 800p.

Pearson got a lift from a positive US investment presentation, gaining 35p to 1,286p

Delta, the electrical group that halved its dividend, switched on a 12p gain to 148.5p as the market pondered whether its difficulties will encourage a predator. TT, the aggressive conglomerate stalking Hall Engineering, is known to be eyeing the company. HSBC put a 220p target on the shares.

Kenwood Appliances produced its second warning in two months, indicating a second-half loss. The shares were whisked 19p lower to 76p. Sira Business Services, the contract cleaner that produced a late warning on Tuesday, fell 0.75p to 2.75p.

KS Biomedix firmed 6.5p to 322.5p after saying it had developed 14 antibodies for breast and lung cancers. French, the textile group, firmed 4p to 24.5p on the arrival, with 7.69 per cent, of Julian Richer, the hi-fi retailer.

SEAQ TRADES: 1.3 billion

SEAQ VOLUME: 99,553

GILTS INDEX: 115.65 -0.03

SOUNDTRACS, the audio equipment group, hit a 12-month high note, gaining 3p to 67.5p. It is scoring from the switch to digital technology.

Chairman Richard Owen said that turnover in the first 16 weeks of the year was up by more than 90 per cent and the order book was "very strong". EastEnders, the BBC television soap, has moved to digital production and is a Soundtracs client. Profits last year were pounds 256,000.

ARLEN, the electrical group, is believed to be near to completing the sale of some of its operations for around pounds 10m.

It is already well endowed with cash, and it is thought that once the deals are completed Arlen will flex its muscles and seek a major acquisition. There is also the possibility an outsider will barge in with a bid. Arlen is capitalised at pounds 12.7m. The shares are 19p; they were 34p last summer.