Market Report: Last-minute swoop leaves Swallow in the takeover frame

THE HOTEL group Swallow yesterday experienced a classic end-of- the-week surge amid whispers that a bid is on its way.

Traders were already switching off their screens and looking forward to their first pint of the weekend when a last minute raid sent Swallow shares 30p higher to 307.5p. The 10-per-cent-plus rise occurred in the last hour of trading when a number of buyers started to pick up stock well above the market price. Interest in Swallow continued after the close as punters and institutions rushed to buy the stock in the after-hour market.

All this excitement appeared to have one explanation: bid rumours. Swallow, formerly known as Vaux, has been seen as a sitting duck ever since it sold most of its pubs in July. The disposal left the group with its 36 four-star hotels, a highly regarded chain which would be a prized target for a rival.

The speculation doing the rounds late yesterday centred on the usual suspects. Greenalls, 2p lower at 275p, would be a good fit. The company already owns 17 De Vere hotels and is keen to expand in the sector after selling its pubs to Scottish & Newcastle, up 4p to 468p after striking a deal with the competition authorities over the acquisition.

However, Greenalls could be beaten by Whitbread, down 8p to a 12-month low of 570.5p. The leisure giant is having a terrible time and the purchase of Swallow, and maybe Greenalls, could be the answer to its critics. A bid from another rival, such as Granada, 12p lower to 538p, or Bass, down 3.5p to 633p, or even a buyout by the Swallow management were seen as less likely but not impossible.

The rest of the market suffered an hangover from the recent rally. The FTSE 100 recorded its biggest fall in a month, shedding 68.5 points to 6482.3 as the profit-takers won the day. The leading index's fall was compounded by weakness in its second largest member Vodafone AirTouch, down 8p to 275p as investors fretted about its do-or-die bid for German rival Mannesmann. The Dow did not help London's cause with a shaky start.

Eagle-eyed traders said that there was more to the blue chips' fall than met the eye. They noted that the FTSE 100 futures was sharply lower at around lunchtime amid talk that a couple of large hedge funds were selling big chunks of the contract, probably in an attempt to lock in some profits.

The hedge funds' blitz was successful. The future ended 65 points lower at 6506 and its weakness spilled over into the FTSE 100.

The second liners had no suck problems. The FTSE 250 ended 5.9 higher at 6083.4 while the Small Cap lost just 0.5 to 2841.7.

Bid stories kept some of the blue chips afloat. Cement-maker Blue Circle built a 20p gain to 335.25p on continued whispers of a strike from UK rival Hanson, 22p higher at 505p, or a foreign rival. The Vodafone bid excited the telecoms. BT, 38p better at 1267p and Cable & Wireless, 32.5p up to 841.5p were boosted by corporate action hopes.

Carlton Communications jumped 12.5p to 513p on returning talk of a bid from Italian rival Mediaset or even Pearson, 29p lower at 1440p. Insurers Norwich Union, 9.25p better at 448.25p, and Royal & Sun, up 4p at 403p were also helped by takeover whispers.

Retailers were on the reject shelf after Wednesday's profit warning from Arcadia, 17p lower to a record low of 90.5p. A 12.75p fall to 238p in Marks & Spencer rekindled stories of a merger with Kingfisher, 12.5p lower to 644p, or Tesco. The supermarket chain plummeted 13.75p to 170.5p on rumours that rival J Sainsbury, 22.25p lower at 318.25p, will unveil a price war at next week's interims. Department store Allders fell 3.5p to 136.5p even though the bid rumours grew louder after property group Minerva, flat at 221.5p, increased its stake to over 9 per cent.

Housebuilders shone in the midcap after Thursday's upbeat trading statement by Barratt, 23.5p higher to 314p. Wimpey, was 12p better at 131p, and Berkeley, gained 56p to 693.5p.

The Internet tiddler Geo Interactive soared 32.5p to a record 323.5p on talk of two large deals, while computer group Stordata Solutions jumped 2.25p to 6.5p after saying that trading is booming.

SEAQ VOLUME: 1.94bn

SEAQ TRADES: 115,504

GILTS INDEX: 107.34 -0.25

f.guerrera@independent.co.uk

RECENTLY floated Monotub Industries could soon come out with some positive news. The maker of a revolutionary washing machine spun 5p higher to 182.5p yesterday amid talk that a large deal is near.

According to dealers, a leading retailer will sell its "Titan" machines next year. The Titan, designed to take bigger loads than traditional machines, has so far failed to impress investors and Monotub shares have languished around the 163p mark.

ANOTHER DAY, another rumour of a cash shell about to announce a deal. After Knutsford and Rodime, it is the turn of Corum to come under the spotlight.

Punters believe the AIM-listed shell, flat at 160p, is looking at an acquisition in the financial services sector. The juicy part is that Corum's target is apparently big in the online business sector and could be similar to Egg, Prudential's Web-based bank.