Market ReportL: Asda merger sets retailers' alarm bells ringing

THE PROPOSED pounds 18bn Asda/ Kingfisher merger prompted alarm bells to ring in the retail sectors.

The prospect of the biggest shops group the country has ever known being created put the shares of many stores under pressure.

Great Universal Stores fell 46.5p to 726p and Marks & Spencer 18.75p to 423p. Boots gave up 27p to 855.5p and Dixons 44p (after 80p) to 1,343p. MFI, the furniture chain seen as a bid target in Thursday's excitement, fell 3p to 46.5p as speculators withdrew.

But the possibility the Asda/Kingfisher deal would quicken the pace of shopkeeping mergers prevented a retail rout. And the expected arrival in this country of Wal-Mart, the US giant, and the growing ambition of Continental groups, which are taking an increasing interest in British retailing, produced a few buyers, particularly among the supermarkets.

Safeway improved 4.75p to 260p in heavy trading and J Sainsbury, helped by a better-than-expected trading statement, gained 15.25p to 390.25p. Tesco, already being linked with more Continental buys, jumped 14.25p to 181.5p.

Asda, with turnover reaching a staggering 91.2 million shares, checked in with a 22.25p (after 26p) gain to 198.75p; Kingfisher reversed a 35p advance to end 35p down at 840p.

Away from the supermarket excitement the day belong to the mid-cap contingent. As Footsie wilted for the third-day running, the small-cap index jumped 88.9 points to 5,796.2. It has been in relentless form this year although it is still more than 150 from its peak. The small-cap index climbed 18 to 2,467.1, still more than 300 from its high.

Footsie, off 45.5 to 6,420.6, was ruffled by an uncertain New York display as well some switching out of fashionable blue chips, such as telecoms, into cyclical shares. In early trading it advanced 47.1, largely on the back of the Asda/Kingfisher excitement.

It was the second busiest session ever with share volume - helped by Asda's 94.1 million contribution - mushrooming to 1.6 billion.

Engineers, chemicals, paper and packaging, building materials and oils - all renown for their under-performance - were prominent in the mid-cap charge.

Cookson, the engineer, led the way with a 24.5p gain to 177.5p; Spirax- Sarco, buying in its shares, rose 51p to 552p.

The stream of corporate activity continued with Albright & Wilson, the chemical group, gaining 18p to 163p as Albemarle, the US group, lifted its offer to 160p, topping a counter bid from Rhodia of France. With some, including Martin Evans of Sutherlands, claiming Albright is worth 180p a share, the French may not yet be out of the battle.

London Clubs International jumped 11.5p to 159p as some bet on a management buy out. Yule Catto reacted 21p higher to 322p on bid speculation.

Devro, the sausage skin maker, attracted bid speculation although the shares were little changed at 132.5p. The company has produced four profit warnings and its shares have fallen from 545p in the past 12 months. Former chairman Leon Allen, now a venture capitalist, is claimed to be trying to put together a bid. Mr Allen, who used to head the Tetley tea group, is said to be preparing a 200p a share offer.

But the Break for the Border night clubs group felt the impact of a failed bid. The shares fell 8.5p to 35.5p after Po Na Na, a late-night bar chain which is traded on the fringe Ofex market, called off merger talks. Po Na Na rose 3p to 95.5p. Kunick, the amusement machine group, fell 1.5p to 16.5p as a rumoured bid failed to materialise.

Scottish & Newcastle, the brewing group, was flat again with profit worries resurfacing and talk of problems over a brewing contract.

Water shares were ruffled by BT Alex.Brown caution - "the sector is best avoided for the moment", said the investment house. Thames Water was lowered 15.5p to 900p and United Utilities 6p to 732.5p.

The mining blue chips, Billiton and RioTinto, continued to claw their way back on the expectation that commodity prices are going to advance. Billiton became the best performing Footsie constituent of 1999 with a 14p gain taking it to 201.5p. The shares started the year at 119p. Rio rose 17.5p to 1,021.5p.

BP Amoco was another beneficiary of the more positive approach to resources, gushing 52.5p to 1,125p, a new peak.

Many fund managers are still believed to be underweight in Footsie's biggest component and their positions will not be helped by the proposed take over of the US giant Atlantic Richfield. Shell gained 25p to 444.75p.

BTR Siebe enjoyed the improved climate for engineers, gaining 21.5p to 321p. Shareholders approved the change of name to the unlikely Invensys.

AstraZeneca suffered further punishment, falling 71p to 2,579p. The shares have fallen each day since the Anglo-Swedish merger was completed on Tuesday of last week. A suggested 2,600p price target from Warburg Dillon Read seems to have been an unsettling influence.

There has also been some bearish analytical comment on drugs, which has hit the industry's leading shares. But a nine- day losing streak must represent an unhealthy start to market life for the new group. One suggestion is the small but highly-vocal Swedish contingent which opposed the deal is selling shares.

Cambridge Mineral Resources continued to sparkle following its positive progress report on its search for diamonds in Ireland. The shares rose 2.5p to 10.5p; they have climbed from 5.5p this month.

SEAQ VOLUME: 1.6bn

SEAQ TRADES: 111,050

GILTS INDEX: n/a

BRITISH BORNEO, the oil explorer, flared 20p to 152.5p. Besides the perceived revival in oil fortunes the gain was fuelled by talk of takeover action - and a significant find. According to a well-informed source, BB was evaluating what could be a rich discovery in the Gulf of Mexico which would add impressively to its assets.

The shares almost touched 400p last year and were 522.5p a few years ago.

ON A day when a variety of takeover rumours swirled around the market, First Leisure Corporation was under the speculative whip.

The shares, in heavy trading, jumped 24p to 247.5p. Talk of a predatory strike has often gone the rounds as Michael Grade has reshaped the sprawling group. Profits have been under pressure but a modest recovery to pounds 34m is expected this year. The shares have touched 436.5p.