Market Report: Tomkins rises higher on talk bread division will be sliced

Market Report

THE BUNS-to-guns conglomerate Tomkins shot higher yesterday amid growing rumours that it is preparing to slice off its bread division.

The whispers sent the shares more than 3 per cent higher, before settling 4.25p higher at 214.25p. The volume of more than 11 million suggested that a number of buyers were building up their positions ahead of the mooted deal.

According to the dealing room's rumour mill, Tomkins' boss Greg Hutchings is ready to spin off or sell the Rank Hovis McDougall bread division to focus on gunmaker Smith & Wesson. The unit makes well-known products such as Hovis loaves and Mr Kipling cakes and could be a tasty morsel for a private equity group such as Hicks Muse Tate & Furst, the owner of rival food producer Hillsdown.

However, Mr Hutchings knows which way his bread is buttered and is not prepared to let go of the division on the cheap. The Tomkins chief is believed to want pounds 2bn for Rank Hovis and any offer below that level could trigger a stock market float.

Racier dealers said Mr Hutchings could go all the way and take advantage of the company's depressed share price to take it private for around pounds 3bn.

The other rumour doing the rounds yesterday belonged to that grey area between fantasy and reality. The story, for those who want to believe it, was that a cash-rich private equity fund is lining up a bid for retail giant Kingfisher.

The owner of B&Q, Woolworths and Superdrug rose 23.5p to 636.5p despite a weak retail sector, as dealers gambled that there is no smoke without fire. According to the rumour, the private equity stalker believes that Kingfisher, which is valued at more than pounds 8.3bn, could be broken up and sold off in parts.

Remaining blue chips had an off day as the profit-takers came out of the woodwork. The FTSE 100 ended 27.3 lower at 6,555.7 as brokers capitalised on the leading index's 5.2 per cent rise over the past month. A weak start in the Dow following Tuesday's rip-roaring rally and some hawkish comments by the Bank of England's Monetary Policy Committee helped to undermine sentiment.

The second liners did much better as positive news and bid rumours kept the buying momentum going. The Mid Cap finished 37.5 higher at 6,044.4, while the Small Cap rose 20.6 to 2,840.5. A similar rise today and the smaller companies' index will break its all-time record.

Blue chips and midcappers were excited by changes to the Morgan Stanley Capital International indexes - one of the most widely followed benchmarks. The new entrants into the pan-European index were boosted by trackers' buying. Steel giant Corus, 9p higher to 119.5p, computer groups Sage, 58p better to 4,000p, and Sema, 40p up to 1,071p, were the main winners. The losers included insurer Royal & Sun Alliance, down 30p to 412p , utility Scottish & Southern, 29p lower at 508p despite in-line results, and defence group Rolls-Royce, 5.25p down to 211.75p.

Inclusion in the new MSCI UK index helped techies Psion, 376p higher to 2191p in frantic trading, London Bridge Software, up 625p to 4175p, and ARM Holdings, 235p higher to 2,610p.

The non-anoraks shrugged off the index changes and focused on metal stocks. Rio Tinto dug up a 101p rise to 1,249p on a JP Morgan push. Rival Billiton surged 24.75p to 303.5p helped by the inevitable bid rumours. Anglo American rose 240p to 3,511p in sympathy.

Financials were mixed. Insurer Prudential shed 53p to 1,069.5p on a Morgan Stanley downgrade. A big analysts' meeting today should provide more news on the Pru's UK strategy and rumours of a flotation of its web bank Egg.

NatWest jumped 10p to 1,387p on whispers that Bank of Scotland, 5p higher at 748.5p, could increase its offer.

The rampant telecoms finally fell foul of the profit-takers. BT plummetted 71p to 1,217.5p as the sellers got stuck in, while Energis fell 109p to 2,323p. Vodafone rose 5.25p to 277p after denying rumours that it was not going to bid for Mannesmann. A bid of around 230 euros per share is expected tomorrow.

In the midcap, needle-less syringe-maker Powderject injected 105p to 962.5p on rumours of a deal with drug giant SmithKline Beecham, 27p lower to 828p. Wild rumours of a bid from SKB were also heard.

Good results from Airtours, 28p better at 357p, and vague bid rumours pushed rival holiday group Thomson Travel 14p higher to 98p. Engineer WS Atkins jumped 10p to 650p on whispers of a contract win. No such luck for retailer Arcadia, down 13p to 137p on rumours of tough trading and impending analysts' downgrades.

The tiddlers were very lively. Irish oil driller Bula, flat at 2.75p, saw another day of huge turnover amid whispers that it is to appear on Channel 4's "Show Me The Money" programme. A tie-up with a huge Korean engineer and Malaysian group Petronas is also rumoured.

The virtual reality software minnow Superscape VR more than doubled, rising 1,548.5p to 260p after raising pounds 20.4m to fund expansion into e- commerce. It is also in talks to extend its relationship with US chip giant Intel.

Lloyd's insurance broker SVB was flat at 118p despite talk of a bullish note with a 175p -185p price target. IT recruiter MSB jumped 18p to 254.5p on returning talk of a 300p-per-share management buyout.

Talisman House, the AIM-listed financial group which owns broker Seymour Pierce, firmed 1.75p to 11.75p on rumours of a bid or reverse takeover by an unquoted broker.

Internet games group On-line soared 46p to 290p on whispers of a deal. Cinema operator Pacific Media rose another 0.5p to 2,624p in gigantic volume on talk that the much-rumoured Internet reverse takeover is close.

SEAQ VOLUME: 2.68BN

SEAQ TRADES: 121,562

GILTS INDEX: 108.02 -0.72

f.guerrera@independent.co.uk

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