Market Report: FKI surges on hopes of an imminent takeover

FKI is the focus of renewed bid speculation. The engineering company has been a feature of market chatter for many weeks now. At various times, different rumours have suggested that either the company was about to receive a counter offer to the revised proposal made by the engineering conglomerate Melrose, in March, or that the second bidder had dropped out, robbing investors of the pleasure of a bidding war.

Yesterday, new rumours suggested that Melrose had finalised funding for a firm 85p-per-share offer, which it would unveil on Monday.

Another rumour added that Melrose's offer would be met by a rival 95p per share proposal from Blackstone, the private equity firm. The second rumour proved less persuasive and is understood to be incorrect.

The talk took FKI stock up to an intra-day high of 79.50p. By the close, the shares had eased back to 75p, up 1.75p.

Overall, the FTSE 100 was down 69.60 points at 5,895.50. The London benchmark was depressed by early weakness on Wall Street, which suffered under the pressure of disappointing results from General Electric and a worrying report on US consumer confidence. The Reuters/University of Michigan Surveys of Consumers said that its preliminary index of confidence slumped to 63.2 in April from 69.5 in March, its worst reading since March 1982. Near-term inflation expectations were also up at their highest since the Saddam Hussein's Iraq invaded Kuwait, precipitating the first Gulf War and a sharp rise in the price of oil.

The FTSE 250 was weak, too, shedding 81.60 points to 9,931.40. Banking stocks remained stuck in the red on the back of continuing fears for the global economy. HBOS lost 9.50p to 507p, while HSBC was down 4.50p at 854.50p. The Royal Bank of Scotland was down 3.25p at 359p and Alliance & Leicester was lighter by 6.50p at 489p.

On the FTSE 100, infrastructure and manufacturing services provider Amec was strong after UBS revised its rating for the stock to "buy" from "neutral". Analysts at the bank said Amec's recent share price weakness and its underperformance relative to its British peers and the wider European oil services sector was unjustified, adding: "The company has delivered on its strategy with two modest acquisitions, and could significantly benefit if sterling weakens relative to [the dollar]."

The assessment took Amec to third place on the FTSE 100 leader board, up by 20.50p to 741p.

Friends Provident was weak following speculation that JC Flowers, the US private equity firm which submitted a 150p-per-share takeover proposal to the company late last month, may abandon its attempts to acquire the business if the life insurer refuses to enter into talks.

"I think this is market chatter," said Tim Young, an analyst at Collins Stewart. "Nobody at Flowers [which is basically two people] is speaking to anyone ... Nonetheless, put-up-or-shut-up [the 30 April bid deadline set by the UK Takeover Panel] applies to both parties and the Panel will be putting Friends under serious pressure to allow Flowers access." He added: "If the bid fundamentally undervalues Friends, why is the share price 10 per cent below Flowers' cash offer? Again, I repeat, [Scottish] Widows may support the Friends' board but some other major shareholders certainly do not."

Friends Provident closed down 4.80p at 130.60p.

On the FTSE 250, transport companies were hit after Credit Suisse reduced its target prices for the stocks, noting: "The poor absolute and relative share price performance of the UK public transport groups gives a good illustration of how nervous investors have become." Stagecoach, whose target price was cut to 275p from 300p, fell by 5.50p to 229.50p, while Go-Ahead, whose target price was cut to 1950p from 2500p, was down 16p at 1,552p. Bus operator Arriva was weaker by 10.50p at 679.50p after its target price was lowered to 675p from 800p.

Among smaller companies, data encryption specialist Ncipher gained a 40.20 per cent, or 50.75p to 135p, after confirming earlier speculation about a takeover approach. The company said that it has received a number of preliminary approached, but remained silent on the identity of the suitors. Investor sentiment was helped by vague market chatter, which suggested that the company had received offers of up to 250p per share.

HgCapital Trust was up 31p at 862.50p after selling Boosey & Hawkes to Imagem Music for approximately £126m.

On AIM, smart card and ID management software provider Intercede was up 3p to 34.50p after the market learnt of continuing strong demand for its MyID technology. The company is set to benefit from increased security expenditure in the US, and is well placed to make the most of the introduction of ID cards in the UK.