Market Report: Lonmin and Imperial fired up by bid speculation

Lonmin advanced by more than 5 per cent to 2,662p yesterday after a flurry of bid speculation swept through the mining sector.

Xstrata, which was down 107p at 3,423p, and Eurasian Natural Resources Corporation (ENRC), down 17p at 1,048p, were said to be mulling offers for the platinum miner, which ended the day at second place on the FTSE 100. Xstrata has been linked to Lonmin before, and was said to be considering an offer of around 3,450p per share.

Elsewhere, a separate set of rumours suggested that, instead of going after Lonmin, ENRC may emerge as a possible counter-bidder for Imperial Energy, the FTSE 250-listed oil and gas explorer and producer, which was up 40p at 1,084p last night.

The talk follows Imperial's statement confirming discussions regarding a 1,290p-per-share proposal, believed to be from India's Oil and Natural Gas Corporation, earlier this month.

Overall, the FTSE 100 slipped back in to bear market territory, as it declined 40.2 to 5,364.1. The London benchmark was pushed down by weakness in the consumer-related stocks, which registered losses following disappointing updates from Vodafone, down 20.25p at 129p, and Enterprise Inns, 46.25p weaker at 299.5p. Losses in the banking sector, which was depressed following weak second-quarter earnings figures from American Express and Wachovia Corporation, also weighed on the senior index.

Vodafone was the worst off on the FTSE 100. The mobile phone giant cut its revenue outlook, citing first- quarter performance, recent economic weakness and lower than expected equipment revenue.

Reacting to the update, Collins Stewart said that "perhaps it was always too good to be true... The Spanish and UK telecoms markets, resilient to the economic slowdown to date, finally look to have cracked".

Enterprise Inns, at second place on the loser board, slumped after posting a disappointing interim management statement. The pubs group said its earnings were under pressure from falling beer sales and the costs of assisting struggling tenants. "Consumer confidence is low and the rising costs of food, fuel, mortgage costs and taxes have put increasing pressure on disposable income and discretionary spend," said the company, sullying sentiment across the sector.

Its FTSE 250-listed peer Punch Taverns was among the hardest hit by the read-across and closed down 9.52 per cent or 25.25p at 240p.

Mitchells & Butlers was down 10.25p at 247.5p, and Marston's, the owner of the Pitcher & Piano bar chain, eased back 4.75p to 194.75p.

In the wider market, retailers were hit by the two updates and Carphone Warehouse lost 11.15p to 190.6p. Marks & Spencer retreated 5.75p to 253.5p, and Next was 3p weaker at 1,012p.

In the banking sector, HBOS remained depressed, down 3.5p at 261p, on the day after the mortgage lender said a mere 8.29 per cent of its shareholders had backed its £4bn cash call. "Other than short positions closing, it is difficult to see new buyers emerging for HBOS," said Cazenove. "... without a strong rally in the sector, we expect [the] HBOS share price to drift lower."

Rumours casting National Australia Bank (NAB), the financial services group behind Clydesdale Bank and Yorkshire Bank, as a potential bidder for the HBOS-owned BankWest failed to support the stock. The speculation was prompted by reports that NAB had pulled out of talks to acquire ABN Amro's Australian assets from Royal Bank of Scotland, which was down 4p at 199p.

Like the benchmark index, the mid-cap FTSE 250 was weak, down 62.9 at 8,982.6. Here, the housing sector rally ended as the effect of short closing wore off. Recent strength in the sector had forced short sellers to call off their bets on declining share prices. But last night, Bovis Homes was almost 13 per cent, or 56.75p, lower at 383.25p. Bellway lost 11.35 per cent, or 67.5p, to 527p, and Persimmon closed at 326.25p, down 8.74 per cent or 31.25p.

Also heading south, Mecom, the European media group, lost 14.44 per cent or 3.25p to 19.25p after Royal Bank of Scotland downgraded the stock to "hold" from "buy". The broker also reduced its target price for the stock to 24p from 34p, noting that "against an increasingly challenging consumer spending backdrop in Europe and with more limited margin against its bank covenants, Mecom will continue to attract a risk discount".

"We see limited scope for corporate actions to resolve its balance sheet," added RBS.

Among smaller companies, Nestor Healthcare lost 3p to 45p as the prospect of a bid abated after the company said it had received expressions of interest for certain parts of the business, but not for the group as a whole.