Market Report: Arm Holdings tipped as predator, not prey

Bid rumours may be a constant presence around Arm Holdings, but yesterday the talk was that the chip designer could become the predator and not the prey.

The Cambridge-based group has been linked with numerous potential aggressors, including companies that use its technology, such as Apple. Yet Benchmark's Gary Mobley warned that this was unlikely, quashing the takeover hopes of investors by claiming there were "no natural buyers".

"Arm's business model is based on neutrality," said the scribbler. "Therefore, it does not make sense for one of Arm's licensees to buy the company."

Instead Mr Mobley suggested its impressive cash generation meant the group could be on the lookout for its own acquisition to fill gaps in its offerings, putting forward the private groups Coresonic and Tensilica as two possible targets.

The analyst also raised Arm's rating to "buy", saying its "presence is increasingly being felt in new end markets" such as tablet computers. Although he noted the chip sector is enduring a "short and shallow" period of inventory correction, he went on to add that he "would use any weakness this causes in Arm's share price as a buying opportunity", prompting the group to be driven up 22.5p to 619p.

Investors disappointed at Arm's bid chances being played down had plenty of other tales among the global technology companies to get their teeth into. In Germany, the LED equipment maker Aixtron was helped by takeover speculation, while there were also rumours the beleaguered Finnish mobile phone giant Nokia could be about to receive an offer, with vague suggestions Google may be mulling over an approach.

Although volumes were low ahead of today's eagerly awaited statement from the US Federal Open Market Committee, the FTSE 100 still managed to almost completely wipe out Monday's losses of more than 2 per cent. A strong start, as the City ignored S&P's downgrade of Italy's credit rating, seemed to lose its momentum after the International Monetary Fund cut its forecast for the UK economy, but a surge at the end of trading meant by the bell the benchmark index had climbed 104.15 points to 5,363.71.

Taking the wooden spoon was International Airlines Group (IAG), with the British Airways-owner plummeting 4p to 150.2p, thanks to a profit warning from Lufthansa. The German airline revealed its operating profit for 2011 would not see a year-on-year increase following poor sales figures in August from its passenger operations.

Investors were clearly preferring to travel by boat, as Carnival sailed ahead 132p to 2,145p. The world's largest cruise company released its third-quarter results mid-session, which impressed despite an increase in fuel prices leading it to trim its full-year earnings expectations.

Burberry, a favourite of the gossips, moved 50p ahead to 1,500p following impressive results on Monday from its peer Prada. As well as some still claiming it could become a bid target, traders suggested the luxury retailer may also have been helped by London Fashion Week, with its show earlier in the week seen as a success.

Barratt Developments closed near the top of the FTSE 250, rising 4.45p to 82.2p after Citigroup gave the housebuilder the thumbs-up. Raising their recommendation to "buy", analysts from the broker said the company's discount to its net asset value was far too high, making the "risk-reward balance... attractive".

The scribblers also cast their eyes over the rest of the sector, noting that, despite the dire economic situation, recent results "have indicated that activity has been satisfactory".

They still cut their price targets for a number of companies, yet Persimmon managed to increase 21.8p to 462p while Taylor Wimpey ticked up 0.39p to 33.51p. Elsewhere, Hansen Transmissions was lifted 3.3p to 65.3p in the wake of the German engineer ZF Friedrichshafen's offer to the gearbox manufacturer's shareholders being extended to 5 October, after the two agreed a takeover deal in July worth 66p a pop.

Down on the Alternative Investment Market, Pendragon crept back 0.04p to 9.95p despite the return of vague bid rumours around the car dealer.

Gossips said the group could be in line for an approach from either private equity or the veteran investor Jack Petchey, who had an attempt for Pendragon's peer Lookers rebuffed earlier in the year, although traders played down the speculation.

Coolabi, which owns the rights to both Bagpuss, The Clangers and Purple Ronnie, lost nearly a quarter of its share price, shifting 2.25p to 7p after revealing an increase in its half-year losses.

Elsewhere, there was better news for Aukett Fitzroy Robinson, with the architect shooting up 2.25p to 3.88p – a huge move of nearly 140 per cent – thanks to a bullish trading statement from the tiddler.