MARKET REPORT : Murdoch deal is good news for Pearson shareholders

The surprise MCI deal with Rupert Murdoch's News Corporation turned the stock market spotlight on Pearson, the banking and publishing group.

Its shares jumped 16p to a year's high of 613p, with at least one leading stockbroker suggesting it could be contemplating selling its 13.5 per cent interest in the BSkyB satellite television station.

The theory is that the BSkyB involvement no longer fits in with Pearson's strategy, and the prospect of raising more than £600m could prove irresistible.

Pearson, which recently relinquished the chairmanship of BSkyB, could feel it is a relatively modest player in the group where News International has a 40 per cent stake.

MCI's £1.3bn investment in News, giving it a 10 per cent interest in the Murdoch media empire, could, it is felt, hasten a Pearson decision.

BSkyB, possibly helped by the Pearson story but largely on the supportive muscle of US investment house Goldman Sachs, surged 10p to 290p, a new high.

Proposed government media ownership changes have, of course, contributed to the excitement. They are unlikely to help Murdoch to increase his UK operations, but Pearson could possibly achieve more leverage, particularly if it jettisoned BSkyB. The possibility of a cheerful shareholders statement today also helped shares.

Media euphoria was underlined by the latest alliance forged by Flextech, the television group where two US operations, US West and Hallmark, are pumping in £92m. US West collects 9 per cent and Hallmark 10 per cent. Another US group, Tele-Communications, will have more than 51 per cent of the capital after the injection. Flextech firmed to 412p.

Other media stocks higher included Mirror Group Newspapers, up 6p to 140p, and Capital Radio, 7p at 391p.

The Pearson and BSkyB progress was in character with another exhilarating market display. In busy trading, the FT-SE 100 index surged 27.8 points to 3,317.9, the highest this year. Trading was often brisk, with much of the action on the smaller companies front.

Shares failed to hold their best level. They were advancing rapidly when suggestions from the Bank of England that interest rates would have to be increased caused an abrupt retreat.

After pausing for breath, it was all systems go, and once New York stretched to new, perhaps tentative, highs, the market was clearly intent on making more progress.

Sterling's steady display and growing hopes that a soft landing in the US will end the need for higher rates helped create the air of enthusiasm.

SG Warburg fell another 11p to 794p as talk of a counter to the Swiss Bank Corporation's offer faded. Mercury Asset Management was also weak, down 26p to 856p.

But those perennial takeover hopes came to the rescue of United Biscuits. Shares rallied 10p to 341p after crumbling on Wednesday's profit warning. Kleinwort Benson is thought to be suggesting they should be sold down to 300p.

The generators were firm as UBS and Warburg made positive noises. National Power gained 8.5p to 463p and PowerGen 4p to 491p.

Disappointing interim figures left Grand Metropolitan 12p lower at 390p. Allied Domecq fell 13p to 548p. Its interim figures are due next week. NatWest is forecasting a 19 per cent increase to £402m.

Building and related shares were firm despite the Bank's cautious outlook on interest rates. Caradon, the building materials group that issued what many regarded as a cautious trading statement, rose 10p to 264p. It is one of seven shares NatWest regard as good value.

Others higher included Wolseley, Blue Circle Industries, Beazer and Berkeley.

Forte, the hotel group, weakened 4p to 237p with a large line of stock said to be on offer.

Hanson rose 5p to 245p. Its US split has prompted adjustments to its convertible bonds and warrants. The conversion price of the bonds, now 258.75p, is expected to become 248p for each share and the subscription for the warrants, now 300p, is likely to be 287p with extra warrants doled out.

Union, the financial group formerly known as Union Discount, continued to attract vague takeover attention, up 4p at 95p. But there are growing doubts whether Fisons will after all capture Medeva. Suggestions the talks have hit problems are circulating and Medeva fell further to 232p, off 5p. The shares have sagged from 264p.

Fisons, however, have remained relatively firm, although the shares shaded 2p to 187p. Thoughts that Zeneca could be tempted to barge in with a Fisons bid is offering support.

Tadpole Technology collapsed 44p to 134p and was suspended pending interim results. Tepnel, the medical equipment group, recovered half of its fall, climbing 5p to 38p.

The signalled departure of German striker Jurgen Klinsmann lowered Tottenham Hotspur 3p at 123p.

Midland & Scottish, the oil group, remained in demand, up 2p to 6p, a gain of 4p this week. There is talk of a reverse takeover.

TAKING STOCK

o Airflow Streamlines, the vehicle body maker and car dealer, surged 55p to 215p after a modest 15p gain in early trading prompted the company to say the year's profits would "substantially exceed" market forecasts, which hover around £2.2m.

Last year the Airflow Streamlines, regarded as a solid, well-managed business, produced £1m. In 1990, when the shares were around 225p, the group achieved profits of £3.2m.

o There was some chunky trading in Midland Independent Newspapers, prompting gossip of takeover action. But the shares stuck at 122p. They were placed last year at 140p.

With so much activity in the media industry it would not be surprising if speculation lapped around the group.

EMAP, the expansion-minded publisher, was the name in the frame.