Market Report: Takeover talk breathes life into Pharmagene

A renewed retreat by Wall Street yesterday, which came hot on the heels of Friday's sharp drop by American shares, spelt turmoil for London's blue chips yesterday.

A renewed retreat by Wall Street yesterday, which came hot on the heels of Friday's sharp drop by American shares, spelt turmoil for London's blue chips yesterday.

But many small caps avoided the carnage and among them was Pharmagene, 1.25p higher at 27.75p. Those investors buying into the company must be hoping it will soon be taken over. During the tail end of last year disaster struck the biotech group, as it admitted that its lead product, a drug to treat cystic fibrosis, did not work.

Shortly afterwards, Alastair Riddell, the chief executive, was forced to resign. Market professionals believe the best the company can expect is for it to be acquired by a larger player.

But those betting on a takeover are unlikely to get much of a premium. The companyhas only a handful of early-stage products, a declining services business, which conducts tests on human tissue, and a dwindling cash pile. Hence, any deal is likely to be an all-paper affair.

Elsewhere at the small-cap end of the market, Metnor jumped 12.5p to 226.5p after a series of sizeable director share purchases. David Pinkerton, an executive director at the industrial group, led the way with the purchase of 110,000 shares at prices between 210p and 213p. There were also purchases by Robert Pratt, Alan Greenwell and Keith Atkinson, who together bought 166,000 shares within the same price range.

Tribal added 0.5p to 142.5p after winning two contracts worth a combined £50m from Ofsted. The deal will see Tribal deliver inspection services to about 7,000 schools over the next four years in the Midlands and South-east England.

The recently floated Telit Communications was not so lucky. It dropped 6.5p to 119p, despite the purchase of 10,000 shares at 118p by Oozi Cats, its chief executive. Telit, which listed last month, has two prime operating businesses. The first of these designs and makes machine-to-machine communications devices that provide real-time monitoring and control capabilities for those companies which operate vending machines, utility meters and car fleets. The other, more simply, upgrades cheap mobile phones made in the Far East to European standards, and resells them under the Telit brand.

Meanwhile, in the FTSE 100, just three stocks managed to finish the day in positive territory. ITV was the best performer, up 1.25p to 125.75p, on rumours that Greg Dyke, the former director general of the BBC, is close to tabling a £6bn bid for the broadcaster. Yell added 1.25p to 417.75p, while Emap improved 1.5p to 823.5p. The FTSE 100 fell 64 to 4,827.1 as the Dow Jones again lost ground in early New York trade. Will Armitage, of the spread-betting firm IG Index, believes that if the Dow closes below 10,075.0, blue chips on this side of the pond are likely to suffer another day of sharp falls.

Bullish comments from Dresdner Kleinwort Wasserstein were not enough to lift Vodafone. Shares in the mobile phone giant ticked 0.5p lower to 137p, despite a "buy" recommendation from the German broker, which was accompanied by a 190p price target. Dresdner said: "We consider recent news flow from Vodafone's peer group as having been very positive. This should leave to greater confidence in Vodafone's operational outlook and future cash flows."

Sanford Bernstein made an even more bold attempt to get investors interested in the mobile phone player, 02. The US broker tipped 02 to soon be taken over. "Given the trend towards consolidation in the European telecoms industry, we think an acquisition of 02 is likely to happen at some point," a research note from Sanford Bernstein said. It believes a buyer could pay up to 200p a share for the company. Despite such predictions, 02 gave up 3.5p to 115.25p.

Reuters fell 6p to 407.5p as investors were disappointed by suggestions the information provider will sell its 62 per cent stake in the electronic share trading platform, Instinet, for just $1.8bn to the Nasdaq Stock Market. They had hoped Reuters would get a better price for its shareholding. The group is said to have been looking to dispose of Instinet since the summer. A deal is rumoured to be imminent.

Taylor Woodrow lost 7.75p to 283.75p as Credit Suisse First Boston cut its rating on the house builder to "neutral" from "outperform". It argued that evidence of a slowdown in the housing market makes a takeover of the company less likely.

Finally, Regal Petroleum gave up 31.5p to 410p on suggestions that the oil and gas explorer will soon have to raise fresh cash to complete drilling programmes in Greece, Romania and Ukraine.

Main movers

↑ Stanley Leisure 552p (up 80p, 16.9 per cent). Confirms it is in talks to sell its retail bookmaking operations to William Hill.

↑ Manchester United 271p (up 1.75p, 0.7 per cent). JP McManus and John Magnier are said to be against Malcolm Glazer's bid for the club.

↑ SMG 102p (up 0.5p, 0.5 per cent). Fru Hazlitt is named as the company's new chief executive of radio.

↑ East Surrey 537p (up 2p, 0.4 per cent). Investors await bid developments at the water group.

↑ Premier Oil 585p (up 1p, 0.17 per cent). Appoints Tony Durrant as finance director.

↑ Enneurope 18.75p (up 1.75p, 10.3 per cent). The exercise of a put option by the group's biggest shareholder means it will soon have to table a bid for the whole company.

↑ Antisoma 22p (up 0.25p, 1.1 per cent). Bullish trial data about the biotech group's AS1410 cancer drug excites.

↓ Enterprise Inns 768p (down 26p, 3.3 per cent). Investors ignore upgrade by Deutsche Bank.

↓ WH Smith 338.75p (down 17.25p, 4.9 per cent). The retailer is due to announce interim results on Thursday.

↓ Incite Holdings 3.75p (down 23.75p, 86.4 per cent). The stock resumes trading on AIM, the junior market, after an 18-month suspension.

↓ Game Group 70.25p (down 17.5p, 19.9 per cent). Terminates bid talks.

↓ Smart Approach 9.75p (down 2.25p, 18.8 per cent). Warns that its full-year results will not live up to expectations.

↓ First Calgary 625p (down 120p, 16.1 per cent). A statement saying the company has received a number of bid approaches fails to reassure investors.

↓ Plantation & General 52p (down 9p, 14.8 per cent). Unveils £8.6m rights issue.