Takeover favourites continue to hog the spotlight

MARKET REPORT

Share prices yesterday moved onwards and upwards, albeit at a pedestrian pace, taking the FT-SE 100 share index closer to the 3,500 mark with a 6.8-point gain to 3,482.4. The advance was achieved despite a lower-than-expected increase in US employment unsettling early dealings on Wall Street.

Volume trading in equities in London was quite respectable for a Friday in the holiday season with 648.6 million traded, spread across almost 26,000 bargains.

There were plenty of buyers around on a thin day for corporate announcements.

Trafalgar House's decision not to re-bid for Northern Electric was about the only announcement that could be deemed to be important.

Dealers are fast running out of companies on their books that do not have a takeover rumour attached, although some shares sporting the "bid tag" moved up sharply. Mercury Asset Management, recently cut free from Warburg's strings, climbed 21p to 884p. More than 1.5 million were traded, and the market's favourite predator is Munic Re. Gartmore, another fund manager also tipped as a takeover candidate, added 3p to a year's high of 204p.

Most of the takeover attention, though, remained focused on the electricity sector. Dealers still believe Northern, up 11p to 905p, will attract a bid despite the announcement from Trafalgar, down 2p to a low for this year of 41p.

Dealings in the electricity companies were quite brisk after comments at the London Electricity annual meeting by Sir Bob Reid, chairman, filtered through to the market. He said any company in the sector was liable to be a bid target in the "current turbulent climate."

There was a rumour in late trading that London Electricity, ahead 55p to 844p, could face a challenge to its independence next week from the Pacific Gas & Electric utility based on the US west coast.

Other favoured bid targets saw East Midlands rise 29p to 773p. Yorkshire Electricity finished 38p higher at 812p, and South Wales added 21p to 870p.

Among those already facing real bids, South West moved sharply beyond the 900p on the table from Southern Electric of the US with a 21p sprint to 870p. Eastern, which Hanson is bidding an agreed 975p a share, firmed 2p to 927p as worries about a possible reference to the Monopolies and Mergers Commission continued to die down.

A presentation to City institutions was followed by a 19.5p rise to 324.5p in Inchcape's price. The company is seen as a main beneficiary of the weaker yen.

This week's good results from Guardian Royal Exchange continue to buoy the composite insurance sector. GRE rose 5p to 229p, Commercial Union, due to report interim figures next Wednesday, gained 10p to 635p, and Royal Insurance, results due on Thursday, closed 7.5p better at 339.5p.

Analysts at NatWest Securities expect Commercial Union to increase pre- tax profits from pounds 181m to pounds 220m. They also forecast that Royal's profits will show a strong advance from pounds 191m to pounds 220m.

Insurance brokers were also lively, particularly Willis Corroon with a 5p advance to 149p in late afternoon dealings. There is a growing rumour that Aon Corporation in the US is looking to enhance its position in Europe and may bid for Willis.

Sedgwick Group, down 1p to 137p, is also viewed in some quarters as a possible suitor. A merger of the two would be, according to insurance analysts, quite complementary and create the world's largest broker in the process. Willis is valued at pounds 624m by the latest share price, and Sedgwick at pounds 746m.

David Lloyd Leisure, which confirmed bid talks earlier this week, closed 5p higher at another all-time high of 341p. Whitbread, 625p, is tipped to make an agreed offer of around 350p a share next week for the operator of tennis and fitness clubs.

Bass marched on to another new high with a 5p gain to 680p. Scottish & Newcastle firmed 1p to 608p as it moved a step nearer to acquiring Courage for pounds 425m, which will make it the largest brewer in the UK ahead of Bass.

The hot weather continues to be good news for the pub operators. Greenalls gained 4p to 519p, Boddington Group rose 2p to 281p, and JD Wetherspoon hardened 1p to 538p. Regent Inns, however, was subjected to some profit- taking and fell 15p to 474p.

More gloom for the building sector was provided by James Latham, down 5p to 179p, after the company warned that first-half profits would be lower.

Tour operators were hit again with fresh year's lows recorded by Airtours, down 12p to 369p, and First Choice, off 3p to 90p.

TAKING STOCK

o.Medeva, the pharmaceuticals group that recently failed to tie the knot with Fisons, is rumoured to be casting an acquisitive eye over Meconic, the maker of opiates and other controlled drugs that came to the market in June. Shares in Meconic climbed 7p to 185p against the flotation price of 160p, valuing the company at pounds 61m. Meconic's taxable profits soared 48 per cent to pounds 4.18m in the year to April. Medeva closed 4p down at 247p.

o.Shares in London Clubs International, owner of the Ritz and Les Ambassadeurs casinos, climbed to another new high with a 10p rise to 406p. Takeover rumours have swirled around the company for a couple of months, but the latest rise is said to stem from strong interest from US investors and hopes that the Government will relax the strict gaming laws.