Market Report: Burberry in demand after fresh talk of US bid

Bid talk the surrounded the luxury goods maker Burberry yesterday as fresh speculation suggested the UK group had attracted the interest of Coach, the American handbag and premium accessories company.

This is not the first time the two companies have been linked. Last year, Merrill Lynch cited Burberry as a potential target for Coach or PPR SA, which owns the rival Gucci brand. Yesterday, as chatter regarding an impending approach mounted, Burberry shares, which climbed by almost 7 per cent after rumours of a bid from an unnamed suitor first surfaced on Friday, touched an intra-day high of 464.25p. At the close, the shares had settled at 439.25p, up 4.25p.

Overall, the FTSE 100 index slid further, down 70.8 points to 5,629.1. Worries about the American economy continued to mount following the publication of worse-than-expected US non-farm payroll figures. The FTSE 250 was also down, shedding 183 points to 9,670.7.

Concern for the American economy, which appears more likely to sneeze than many in the market anticipated, continued to weigh on the mining sector, which was depressed by the prospect of contagion elsewhere.

Investors in BHP Billiton, which lost 5.85 per cent or 93p to 1497p, Rio Tinto, which lost 6.01 per cent or 336p to 5258p, Kazakhmys, which lost 6.73 per cent or 112p to 1551p, and Antofagasta, which lost 7.44 per cent or 58.50p to 728p, were rattled, apparently worried that, despite the many recent arguments to the contrary, the rest of the world would likely catch a cold after all.

Others in the sector, including Vedanta Resources, which was down 5.98 per cent or 135p at 2121p, Anglo American, which was down 4.42 per cent or 146p at 3154p, and Xstrata, which was down 2.59 per cent or 102p at 3834p, were also depressed.

Economic concerns also worried the housing sector. Bovis Homes, which issued a cautious outlook, adding that "unless decisive action is taken now to reduce interest rates and more normal conditions return to the mortgage market, it is likely volumes will be well below those achieved in 2007", triggered the latest sell-off. Bovis was down more than 12 per cent or 71.50p, while Taylor Wimpey, which is expected to drop out of the FTSE 100 in the upcoming quarterly review, lost 6.49 per cent or 11.20p to 161.50p.

Others housebuilders, including Berkeley, which was down 6.54 per cent or 69p at 986p, Bellway, which was down 4.39 per cent or 35p to 762p, Persimmon, which was down 4.31 per cent or 30.50p to 677p, and Redrow, which lost 5.37 per cent or 14.50p to 255.75p, were also depressed.

On the FTSE 250, bid speculation surrounded FKI, the engineering group which was the subject of a new, enhanced 85p per share offer from Melrose last week. Market chatter centred on a counter-offer from Blackstone, the American private equity giant which is believed to be interested in the acquiring the company. Hopes of a bidding war for FKI, which has opened its books to Melrose, took the company's share price up 0.50p to 69.75p.

IMI was also buoyant on the back of some bid speculation. Early rumours suggested that Honeywell, the American company which has often been mentioned as a likely bidder, was set to make an approach for the company. No likely offer price was forthcoming and IMI closed up 13p at 440p.

Among small caps, Nestor Healthcare was the focus of renewed bid talk. Last week, market speculation suggested that Cinven, the continental private equity group which acquired Bupa's hospital operations and assets for £1.44bn last year, was mulling a bid for the company. Yesterday, following a growing consensus against the Cinven bid rumours, fresh speculation suggested that Assura, the London-listed healthcare investor, was considering an offer for Nestor.

The talk gave heart to investors, many of whom have been pinning their hopes on the emergence of a new suitor to replace 3i, the British private equity group which was initially cast as the most likely bidder and later reported to have dropped out of the race to acquire the company. The chatter took Nestor up by 1.83 per cent or 1p to 55.50p, while Assura climbed by 2.72 per cent or 4.50p to 170p.

On AIM, Orca Interactive gained more than 22 per cent or 3.75p to 20.75p after saying that it had agreed to a recommended cash offer from Viaccess, a wholly owned subsidiary of France Telecom. The total takeover price is estimated to be $21.4m (£10.6m), or $0.59 per Orca share.

The online marketing specialist TMN also had a good day after revealing a preliminary approach that may lead to an offer for the company. While TMN stressed that the approach was at a "very early stage", its stock climbed almost 18 per cent or 7p to 46p.