Market Report: Credit Suisse puts Next in the takeover frame

Should Marks & Spencer take over Next? According to Credit Suisse, which mooted the scenario in a new note published yesterday, it should.

The market was intrigued by the suggestion, which soon became the most talked-about feature of the 112-page company update on Next.

"We have concluded that investors do not fully appreciate the extent of the structural problems facing Next," said Credit Suisse. "In addition to known problems with women's wear, it faces major issues in: 1) Children's wear – where it is UK No. 1; 2) large store performance as well as small; 3) achieving scale in its Home business; and 4) the credibility of its pricing position."

It added: "In this context, we have reviewed possible takeout scenarios and in particular considered the merits of a scenario in which Next is bought by Marks & Spencer. M&S have never publicly expressed an interest in Next, but we believe this would significantly enhance M&S's strategic prospects."

Credit Suisse concluded that M&S could pay a "significant premium for Next", citing the "benefit of synergies and the use of some of the enlarged group's borrowing capacity".

The note helped Next shares reach an intra-day high of 1,336p, before closing at 1,289p, down 16p. Marks & Spencer closed up 0.75p at 402.75p.

The FTSE 100 continued to slide, falling 81.4 to 5,884.3, as a weak banking sector and early losses on Wall Street softened investor sentiment. Disappointing results from American International Group and the computer giant Dell weighed heavily on American investors, which, in turn, depressed London. News from Nationwide, that UK house prices fell for a fourth consecutive month in February, also hit the market as traders despaired about the lack of impact from recent interest rate reductions. The FTSE 250 was also down, losing 162.9 to 10,067.9.

In the banking sector, HBOS was worst off, losing almost 5 per cent, or 31.5p, to 603.5p. Other fallers included Barclays, which lost 23.25p to 477.25p, Lloyds TSB, off 10p at 453.5p, Royal Bank of Scotland, which lost 17p to 385p, and Standard Chartered, 11p lower at 1,674p.

Renewed speculation about Lloyds TSB's intentions gave a boost to Alliance & Leicester and Bradford & Bingley, the two peers repeatedly touted as the most likely targets. For some time yesterday afternoon, the market appeared thoroughly convinced, apparently pegging its hopes on a bid for B&B, whose shares touched an intra-day high of 242.25p, up almost 17 per cent. The fever eased near the close, with B&B ending up 17.75p, or 8.56 per cent, at 225p, while Alliance & Leicester, after rising to an intra-day high of 586.5p, closed at 563.5p, down 1.5p.

Elsewhere, the spike in the price of crude oil helped Cairn Energy gain 36p to 2,717p, claiming fourth place on the FTSE 100 leader board. The news did not help British Airways, however, which fell 8p to 257.5p. Easyjet was also unsettled by the news and fell 23.75p to 409.5p.

On the FTSE 250, Expro shot to the top of the leader board after saying it had received a preliminary takeover proposal. Expro offered no clues about the identity of the bidder and it was unclear whether the suitor was a sector peer or not. Either way, investors were excited by the prospect and Expro shares gained 332.5p, or 35.89 per cent, to 1,259p.

The sector counterpart Hunting also gained on the news, rising 6.75 per cent to 775p to claim the third spot on the FTSE 250.

Bid hopes kept FKI buoyant. Without identifying the suitor, traders said they were expecting a new proposal for the company early next week, helping take its shares up 4.25p to 73.25p.

The independent investment bank Close Brothers, on the other hand, shed 91p, or 12.13 per cent, to 659p as the market reacted to the news that it had abandoned takeover talks.

Following an uninspiring set of results, Helphire slumped 118.5p or 40.79 per cent, to 172p, sending it to the bottom of the FTSE 250.

Among small companies, Nestor Healthcare was depressed following early speculation that 3i had abandoned a possible bid for the company. Nestor attempted to stave a sell-off by posting a statement in the afternoon, saying that it was still in discussions with a "number of potential offerors". The chatter, however, failed to die down and Nestor's shares lost 8p, or 12.7 per cent, to 55p.

On AIM, the telecoms software company Artilium got a boost from analysts at Panmure Gordon, who revised their recommendation on the stock to "buy" from "sell". Since January, when Panmure initiated coverage, Artilium's shares have lost 80 per cent of their value. According to Panmure, the slump makes the stock attractive for "aggressive investors", keen to capitalise on the company's position in enabling new telecoms services, helping its shares rise by 5p to 40p.