SHARES AND MARKET REPORT: Belgian car seller sparks interest in Avis Europe

BULLS WERE firmly in control of London stocks yesterday as merger and acquisition speculation reached fear pitch in the Square Mile. The FTSE 100 roared 38.3 points higher to 4,979.8 while the FTSE 250 rose 25.5 to a fresh high of 7,320.9 as traders hunted the market for the next company to be involved in some form of corporate action.

The bulk of the excitement focused on Avis Europe, up an impressive 10 per cent, or 5.5p to 58.5p, on hopes the car rental giant is about to be bought by a larger player. Dealers talked of two possible scenarios which would see Avis lose its independence. The most popular story suggested that the car hire group's biggest shareholder, the Belgian car seller D'leteren, could move to buy out minority shareholders. The company controls 60 per cent of Avis.

The South African industrial group, Barloworld, was also bandied around as a possible predator. Although Barloworld has indicated that it would be interested to expand into Europe it was unclear yesterday exactly why it would want to do so via the acquisition of a car rental company. Analysts were sceptical that such a scenario would come to pass, arguing that D'leteren is unlikely to want to sell its holding in Avis at present levels.

Regus, up 5.25p to 99.75p, was also set alight by takeover rumours. More than 27 million shares were traded in the office space group as whispers that a predator could be willing to pay up to 130p a share circled City dealing rooms. Meanwhile, Westbury jumped 10.5p to 513.5p on talk that a larger rival, Persimmon, up 15.5p to 765p, is about to launch an offer for the group.

Allied Domecq, another company on bid alert, rose 12p to 526.5p on hopes that Pernod Ricard will soon buy the drinks giant. This share-price performance was despite a note from Dresdner Kleinwort Wasserstein that poured cold water on the rumour. "The weekend press reports continue to fuel speculation that Pernod is considering a bid for Allied. We think this is extremely unlikely on valuation grounds," the German broker said.

It calculates that in order for the French group to execute such a coup, it will need to raise at least pounds 3.8bn via an equity issue. This, Dresdner believes, will be a tall order for a company with a total market value of pounds 5.1bn. However the broker did admit that a bid for Allied by Pernod in conjunction with another spirits company, maybe Brown Forman or Bacardi, is a possibility.

There was some disappointment for punters betting on a bid for Exel. Shares in the logistics specialist dropped 8p to 842p after ABN Amro downgraded the stock to "hold" from "buy". ABN believes that the lack of comment from Exel, despite two weeks of intense bid speculation, indicates that the company has nothing to disclose to the City.

Merger and acquisition speculation aside, BAT improved 30p to 972.5p in response to Friday's US court ruling in favour of the tobacco industry. A Washington court ruled that the US government cannot receive up to $280bn (pounds 151bn) in past profits as part of its racketeering case against the industry.

This is great news for BAT, which has extensive assets across the Atlantic, and prompted Deutsche Bank to upgrade its stance on the stock to "buy" from "hold". Morgan Stanley was also bullish on BAT as a result of the ruling. Setting a 1,000p price target on the shares, it argued that the legal decision "significantly reduces the litigation risks to which BAT is exposed".

Tate & Lyle soared 33p to 501p as Coca-Cola announced it would be using the group's Splenda sweetener in a new version of its Diet Coke drink. Bulls of T&L believe Splenda could prove to be a major money-spinner for the company. The formula is said to be several times sweeter than sugar, contain virtually no calories and is significantly cheaper to produce.

Among small caps, Hereward Ventures ticked 0.25p higher at 6p after buying a 10 per cent stake in two UK onshore oil and gas licenses. Hereward is slowly winding down its mining operations in Bulgaria to focus on oil and gas exploration. Media Square rose 2p to 26.75p amid whispers that results at the end of the month from the marketing services group will impress.

ZI Medical gained 3p to 9.25p thanks to a bullish trading update from the biotech group, while Block Shield held steady at 131.5p despite rumours that the company is close to winning a licensing deal for its technology from a US mobile phone company. Finally, brokers tipped Zenith Hygiene to enjoy a strong debut on AIM today. The company, which specialises in making hygiene products for the catering industry, has raised pounds 4.5m at 100p.