Market Report: Sweetener from Cadbury peps up jaded Footsie

CADBURY SCHWEPPES offered a tired stock market the sweet hint of merger activity as stories swirled of a deal with Hershey, the US chocolate group.

The shares rose by 51p to 1,001p in busy trading, with an upgrade from Merrill Lynch, on the surface at least, seemingly responsible for the progress.

But it was the rumoured Hershey deal that attracted some buyers. They latched on to the thought that Cadbury will be cash-rich once it sells its non-US soft drink operations and is looking around for confectionery deals.

The group aims to develop its US soft drinks business, based on the Dr Pepper and Seven-Up brands. But the world's fourth-biggest chocolate maker does not enjoy much of a direct involvement in the US - in fact only its Creme Eggs - where Hershey makes and sells its products under licence.

Cadbury, believes the market, is keen to close such a yawning gap in its worldwide confectionery network and is keen to open talks with Hershey - indeed, if it has not already done so.

Merrill Lynch lifted its advice on Cadbury, as well as Unilever, to buy. It expects Cadbury to produce profits of pounds 612m, up from pounds 575m. The investment house is looking for a pounds 500m share buyback and has a 1,125p target price on the shares.

The market had a relatively uneventful session, although blue chips halved early falls as New York turned on a better-than-expected display. Footsie closed off 30.2 points at 6,078.4, ending a four-day winning streak.

The mid cap index weakened 26.4 points to 5,174.5, but the small cap held its winning ways with a 2.4 gain to 2,250.5p.

Mortgage banks attracted attention as Woolwich, up 19.25p to 384.75p, came in with an 11 per cent profits rise to pounds 505.1m and plans to shake up the British mortgage market. It also endeared itself with a higher year's dividend and a special 15p-a-share payment.

Alliance & Leicester, seen by some as Lloyds TSB's next target, rose 42.5p to 886.5p and Abbey National 11p to 1,314p. Halifax, year's results today, missed out, gaining just 1.5p (after 39p) to 771.5p.

Allied Irish Banks, with the ever hopeful boys in dark glasses now looking for a bid tomorrow, lost 57.5p to 1,075p following results.

Oils weakened as the Brent crude price slipped below $10 a barrel. BP Amoco, with disappointing fourth-quarter results, fell 16.5p to 840p and merger hopefuls Enterprise Oil lost 7.5p to 242.5p and Lasmo 2.5p to 115p.

British Airways climbed 13.25p to 429.25p as Morgan Stanley set a 525p price target, but Hays, the business support group, fell 16.5p to 570p after the same investment house suggested the shares were overpriced.

Unigate, up 18.5p to 401.5p, responded to ABN Amro comments that the shares were undervalued; there were also hopes of a share buy back.

Railtrack was shunted into the sidings, down 77p to 1,459p. It is tapping the capital market for pounds 400m with a bond issue. PowerGen dimmed 34.5p to 833p after a US group opted out of the second round of bidding for its coal-fired power stations.

Electra Investment Trust, facing a hostile strike from 3i, firmed 10.5p to 685p after proposing a buyback of up to 40 per cent of its capital.

Corporate action returned to the market undercard. Sidlaw, a high-yielding packaging group, rose 23.5p to 137p after revealing bid talks; some believe Bunzl hovers with a near-170p bid.

Football got on to the bid score sheet with offers for Wembley and Leicester City. Wembley jumped 21p to 378.5p after the company revealed another approach, thought to be from a US group, with a minimum 412.5p offer. If the Americans, or earlier bidder Enic, acquire the famous twin tower stadium, England's games will almost certainly be switched to another venue.

Leicester, up 5p at 42.5p, was said to be the likely subject of a bid from a consortium of supporters.

Two financially challenged football clubs joined the day's action with cash-raising exercises. Loftus Road (Queens Park Rangers) fell 1p to 13p after a pounds 2.3m cash call at 13p and a pounds 1.4m loan from its showbiz chairman, Chris Wright, and Millwall held at 1.15p after raising pounds 300,000 through a share placing.

Rumours of further bid action continued to circulate. Chemical group Brent International, where talks are on, put on 9.5p to 110.5p, on the suspicion a deal is near: around 150p a share is one story. Reed Executive jumped 19p to 110p on rumoured interest.

Coats Viyella rose 3.75p to 39p after attracting a pounds 322m price for its engineering arm compared with earlier estimates of near pounds 200m.

The inevitable profit warnings took their toll. Slug & Lettuce, blaming its northern pubs, wilted 22p to 160.5p and Christian Salvesen, the logistics group, reversed 13p to 81p after disclosing a pounds 3m contract problem.

AB Airlines, which arrived at near 100p last spring, dived 12p to 35p following a bleak trading statement. Allied Carpets rolled out profits of just pounds 59,000 and fell 5.5p to 38.5p.

Reflec, the reflective ink group, lost a third of its value at 2p as it at last revealed details of its cash-rising exercise. It is placing shares with institutions and other investors at 1p each, which it hopes will pull in pounds 2.45m. The issue is not underwritten.

Carbo, the engineer, hardened 1.5p to 16.5p as its management, led by Ken Jackson, met institutional investors. Last week the group took over an Italian industrial abrasives business for about pounds 4.1m.

Topps Tiles, a leading specialist tile retailer, firmed 8.5p to 168.5p after Peel Hunt made positive noises. It sees the chain continuing to grow, with profits this year emerging at pounds 5.6m, up from pounds 4.1m. For the year after the broker is looking for pounds 8m.

DBS Management, the financial group, rose 22p to 121.5p: it was among the final 41 firms removed from the pension mis-selling list.

SEAQ VOLUME: 970.7 million

SEAQ TRADES: 84,785

GILTS INDEX: 114.62 -0.05

SHIELD DIAGNOSTIC firmed 7.5p to 475p. Nomura believes the fair value will be around 2,700p following the merger with Axis Biochemicals, the Norwegian group.

Once the deal goes though - agreement is expected later this month - Shield will move into profits much earlier than if it remained on its own. The healthcare group has had a volatile time of it, with its shares swinging between a 32p low and a peak of 805p.

HUNTING, the oil and defence group whose last reported profits were nearly pounds 39m, firmed 8.5p to 128.5p after it joined forces with the Defence Evaluation and Research Agency in a bid to renew its government management contracts for the atomic weapons establishments. They are worth around pounds 2.5bn.

The new contract starts in April next year. The defence group's shares have fallen from the peak of 275p that they reached last summer.