Smith next City target

SMITH New Court, the securities firm, is readying itself for a bid that it believes may come within the next few months. It expects to be the next victim in the current wave of merchant bank takeovers but regards this as an opportunity to strengthen its market position.

Michael Marks, the chief executive, said last week that although Smith New Court would prefer to remain independent, it would have to accept a link with a larger bank if it found it was short of capital to compete effectively in the future.

This confirms the stock market's view that SNC is the most likely takeover candidate among the City's remaining independent finance houses, in the wake of last week's pounds 1bn bid talks between Kleinwort Benson and Dresdner Bank. Its shares rose 20p to 438p on Thursday, and another 1p on Friday, on bid speculation and a better profits outlook.

Although NM Rothschild owns 30 per cent of SNC, the merchant bank has shown no enthusiasm to put further capital into the firm. Banking analysts noted that SNC is making greater efforts to get itself known around the City. For example, although only two stockbroking firms, BZW and SGST Strauss Turnbull, produce profit forecasts for SNC, the company invited all the leading bank analysts from around the City to its annual results meeting on Thursday.

One potential bidder is believed to be Schroders, which could be forced into a pre-emptive offer for SNC. The bank puts much of its equity business through SNC and Cazenove, the broker, and has a close relationship with both firms.

Wynn Bischoff, chief executive of Schroders, has privately told investors that if either SNC or Cazenove was taken over, the bank would feel obliged to take over the other one to protect its market position. Since Cazenove is a partnership, however, a takeover could prove impossible.

Schroders itself is also seen as prime candidate for takeover by a larger bank, even though the Schroder family holds 48 per cent of the shares. They jumped 24p to 1,138p following the Kleinwort bid announcement on Thursday.

The Schroder family has taken advice on whether to diversify some of its wealth out of the bank. It would find it hard to resist selling if other big shareholders wanted to accept a bid.

Although the bank has built a successful corporate finance business in the UK and the US, it looks increasingly vulnerable in an investment banking market that requires large capital backing. Like SG Warburg, which is being taken over by Swiss Bank, and Kleinwort, it is a medium-sized bank in a business increasingly dominated by a few large players.

Robert Fleming could also find itself on the block. The Fleming family owns 35 per cent of the shares and most of the others are closely held by a number of institutional shareholders.

NM Rothschild is thought the least likely to face a takeover bid - it is 75 per cent owned by the Rothschild family, which shows no signs of wanting to relinquish control.