MARKET REPORT: Turmoil in the drugs industry gives investors a lift

Drugs gave the stock market a lift. As the protracted talks between Fisons and Medeva broke down, Smith & Nephew and Zeneca enjoyed renewed support.

S&N gained 8p to 191p in busy trading as Johnson & Johnson, the US group, reappeared as a possible predator and Zeneca, at one time 42p higher, finished 33p stronger at 1,114p with Swiss group Hoffman La Roche said to be lurking.

The turmoil in the drugs industry borders on the intensity engulfing electricities.

And there is a deepening suspicion that Johnson and Hoffman may not be the only parties playing the shots.

One theory is that Zeneca, tired of peering anxiously over its corporate shoulder, is preparing to strike with S&N, Fisons and Medeva among its possible targets.

The performance of S&N suggests corporate action is near. The price is only a few coppers below the peak achieved ahead of the crash eight years ago.

The shares have tended to surge, then steady and then surge again: classic pre-bid behaviour.

Zeneca, with US investment house Goldman Sachs keen to pick up shares, realises it is a sitting duck unless it can increase its muscle power through acquisitions.

Fisons survived the end of the Medeva talks in better shape than its intended victim. Its shares rose 2p to 191p while Medeva ended 13p lower at 222p after trading as low as 200p.

The talks failed because the two sides could not agree terms. Medeva, always the more reluctant party, was thinking of 300p a share; Fisons nearer 265p. Fisons, which ended the discussions, let it be known it was already in talks for other acquisitions.

Electricities lost a little of their glow as the meeting between South Western Electricity and its 11.2 per cent shareholder, the Southern Co of the US, ended with little sign of compatibility.The Americans talked of a 900p-a-share bid and Sweb, not surprisingly, said it would resist such a pitch. Its shares rose 29p to 939p, a peak. NatWest thinks 960p would represent fair value.

Waters continued to close the gap that has been opened by electricities. North West Water added 12p to 621p and Severn Trent 11p to 611p.

The rest of the market failed to hold early gains. The FT-SE 100 index, at one time up 25.5 points, had to be content with a gain of 9 points to 3,464 at the close. A less-than-rousing opening by New York did the damage.

Scottish & Newcastle, awaiting a Whitehall decision on its bid for Courage, jumped 12p to 599p as the conviction grew the controversial deal would be cleared.

Other brewers drew comfort from the heatwave with Bass up 9p at 656p and Whitbread 6p at 643p.

J Sainsbury, on a Scottish investment tour, improved 9p to 471p, helped by the upbeat Argyll trading statement.

Argyll put on 10p to 364p and Tesco 8p to 324p. NatWest has trimmed its Sainsbury profit forecast by pounds 14m to pounds 866m because of the Texas acquisition.

Willis Corroon, the insurance broker, firmed to 150p as it announced the sale, for around pounds 30m, of its remaining shareholding in Gryphon, a US underwriter.

United Biscuits continued to bask in takeover speculation. The shares rose 10p to 333p with the US group, Campbell Soup, still being put forward as the predator. Associated British Foods gained 8p to 705p following the acquisition of a US speciality oils business from Kraft Foods. Tate & Lyle, down another 7p at 428p, remained unsettled by the share weakness of Archer-Daniel-Midland, the US group owning 7.3 per cent of its capital.

Sears, the retailer, fell 3.5p to 102p. Many high street groups are feeling the pinch and Sears, taking in the Dolcis and Saxone shoe shops, last month issued a profit warning. Great Universal Stores rallied 7p to 625p ahead of results.

Royal Bank of Scotland fell 8.5p to 437p as its Direct Line insurance off-shoot lowered some of its charges. Johnson Matthey fell 13p to 567p on a cautious statement.

Campari International, the leisure wear group, made a drab returned. Suspended at 25p, the shares were at one time down to 12p, closing at 19p.

The troubled group called a halt to share trading to stitch together a financial rescue package that involved raising pounds 2.3m through a loan stock issued to its leading suppliers. The conversion price is 20p.

Telemetrix, the electronic components group, suffered a sharp reverse, off 8p at 78p, reflecting sudden weakness in the shares of GTI, its US associate.

Water Hall, the aggregates group, held at 1.5p with 21 million shares printed. Most of the deals went through at 1p.

TAKING STOCK

There is talk in the usually gossipy drinks industry that Greenalls, the hotel and pub group, plans a significant acquisition. One name said to be in the frame is Surrey Free Inns, which has just arrived on AIM. Its shares held at 80p. SFI, started nearly 10 years ago, has made a dramatic recovery after nearly being crippled by debts. It has 25 pubs and is keen to develop its Litten Tree concept of "superpubs". The Canadian brewer John Labatt has an interest.

rFortune Oil, unchanged at 6.75p, was busily traded, with Seaq turnover nudging 7 million shares. Its chief executive, Barry Cheung, is holding investment presentations in London, Glasgow and Edinburgh this week. The group, the old Blackland Oil, is developing interests in China.