Market Report: Scottish Power loses spark on US bid fears

SCOTTISH POWER lost its spark yesterday as bearish rumours over its mega-acquisition of a US rival left the stock in the dark.

As dealers feasted on Asda following the shock pounds 6.7bn bid from Wal-Mart, the Scottish multi-utility, almost unnoticed, shed 10p to 559p on heavy volume of over 27m. The power failure was sparked by growing worries over SP's pounds 4bn purchase of its US rival Pacificorp. States-connected dealers voiced fears that SP might soon have to face a counterbid for the Oregon- based utility.

Since last year's announcement, the all-share deal has been mired in the US regulatory bureaucracy. No fewer than six states are needed to approve the takeover and so far only one, California, has given an unconditional green light. A further two, civil servants in Idaho and Wyoming, have expressed a favourable opinion, while Oregon has come out against the takeover.

A final decision on the complex matter is not expected until later in the year and some market watchers believe that a US power company, such as the acquisitive Duke Energy, could exploit the delay and jump on Pacificorp. SP's shareholders meet today in Scotland to approve the deal, followed by Pacificorp investors on Thursday, and the management could be quizzed on the chances of a counter bid.

The SP story was an interesting side dish to one of the tastiest main courses the stock market menu has seen for some time. News that the US giant Wal-Mart was to bid 220p a share in cash for Asda sent the UK supermarket 33.5p higher to 218p, within a whisker of its all-time high. The bid puts paid to Asda's all-share deal with Kingfisher, which promptly lost 45p to 778p. The Asda jump came amid feverish trading as Wal-Mart asked Dresdner Kleinwort Benson to buy Asda shares in the market.

The broker is believed to have ended up with 300m shares, nearly 10 per cent of Asda's market value. Traders were so excited that for a brief moment, the food retailer's shares were being bought at above the offer price. Final turnover in Asda was a gigantic 386m.

The arrival of Wal-Mart, whose US market capitalisation is around three times the combined value of the UK's top four food retailers, sent shockwaves through the sector.

Fears of increased competition from a world beater sent Tesco 12.5p down to 178p, and Sainsbury's 18.5p lower at 372p. Boots went ex-dividend and shed 38p to 786p on worries the Wal-Mart-backed Asda will boost its non- food offering.

The deal also triggered a swathe of takeover rumours. Safeway, up 7.5p to 252.25p, was seen as a definitive target with Sainsbury's or Dutch giant Ahold mooted as bidders. Somerfield, 5p better at 289p, and William Morrison, up 0.5p to 164.5p, were also on the bid list. More far-fetched theories included a tie-up of Marks & Spencer, up 0.75p to 370,25p. with either Tesco or Sainsbury's.

The FTSE 100 had little appetite for this food bonanza. The leading index closed 54.7 down at 6,430.1. The London market was more worried than Wall Street - which was in profit when London closed - about a US rate hike. Some mildly bearish comments from Fed chairman Alan Greenspan did not help.

The undercard shrugged off the US gloom and closed little changed, with the Mid Cap ending 0.7 better at 5,818.2 and the Small Cap finishing 0.5 up at 2,609.4.

Takeover talk was all the rage among blue chips. The drug giant SmithKline Beecham swallowed a 25p rise to 862.5p on rehashed rumours of a tie- up with Swiss rival Novartis. Glaxo Wellcome shed 13p to 1,874p on fears it might go hostile if SB talks to Novartis.

Hanson, the building material group, constructed a 9.5p advance to 584p on returning talk of a merger with Blue Circle, up 1.25p to 438.25p. The deal is possible, though hope of a bullish trading update by Hanson tomorrow was also behind the rise.

Stagecoach travelled 2.75p higher to 226.25p after the expected purchase of Coach USA. British Land benefited from a Merrill Lynch's upgrade and jumped 12p to 532p. Land Securities rose 22p to 905.5p in sympathy.

Caradon, the builders' merchants, was the best-performing midcapper, jumping 6.5p to 152.5p. There is some talk that, after much restructuring, the group is ripe for a bid. Packaging group Rexam bagged a 10p rise to 247.5p on vague takeover talk. Good results from its smaller rival J Cropper, up 14.5p to 158p, provided an additional boost.

Fashion retailer Arcadia showed off a 9p rise to 247.5p amid rumours that it is to launch a "virtual shopping mall" on the Net. The web mania also touched Countrywide Assured, up 5.5p to 165p on speculation of plans for an on-line estate agency. Storehouse plummeted 10.5p to 114p as Cazenove downgraded the sector and Merrill went negative.

Pub group Greenalls served up an 8.5p increase to 354.5p on defrosted bid talk. The metal basher FKI jumped 7p to 203.5p after Lehman Brothers increased its 2000 profits forecasts by 17 per cent. Fellow engineer Powerscreen firmed 1p to 171.5p on rumours of a US bid of more than 200p.

Manchester United lost 8p to 170.5p on concerns that its star players are going to ask for even more money.

Bid rumours swept the minnows. JWE Telecom rang a 4p rise to 107.5p on talk of an imminent offer. Storage products specialist Stordata filed a 0.25p advance to 2p on whispers of a reverse takeover. Jarvis Hotels fell 2.5p to 150p even though a joint venture with French giant Accor is thought to be near. The investment company Intermediate Equity debuted on AIM with a 1p rise to 4p.

The daily profit warnings came from mini-conglomerate Stratagem, down 14.5p to 66p, after a drop in earnings in its supermarket fridges division. AIM-listed information technology recruiter Highams Systems shed 9p to 53.5p after announcing a delay in its move to the main market and issuing a lukewarm trading update.

SEAQ VOLUME: 1.45BN

SEAQ TRADES: 70,813

GILTS: 105.80 +0.26

GEARHOUSE, the troubled stage equipment hirer, may be about to be taken over. The shares have plummeted from over 200p to a low of 75p last month after the company issued a profit warning. Insiders believe the plunge has attracted the attention of a predator, which could offer over 130p per share. Possible bidders include Avesco, whose stock jumped 21p to 305p yesterday. The broadcasting contractor reports results today.

MOTION MEDIA, a video telephony specialist, could soon announce a major deal. Shares in the Ofex-traded company rose 15p to 85p amid hopes that the Bristol-based outfit could win the contract to provide the telecom giant Orange with its videophones. According to the latest rumours, the mobile phone operator plans to launch a video phone service later this year and Motion Media could be chosen as one of its suppliers.