Market Report: Yule Catto retreats as takeover hopes fade

Bid rumours may have been a large part of the winning formula that has sent its share price soaring over the past few months, but Yule Catto's takeover hopes were dealt a blow yesterday, prompting the speciality chemicals company to sink towards the foot of the mid-tier index.

Since March, the group – whose ingredients are used in products such as glue and paint – has added close to 30 per cent, supported by vague chitter-chatter it could be in the sights of an aggressor. The US giant Dow Chemicals has been one of the names linked with a potential move, yet last night Yule Catto fell 7.1p to 235.9p after its house broker Royal Bank of Scotland played down the idea.

"Although one should never say never, we believe an acquisition is not very likely," said RBS's analyst Mutlu Gundogan, who downgraded his advice to "hold" from "buy". "Yule Catto produces mainly commodity chemicals," he added, "something that most chemical companies attempt to reduce, not increase, exposure to."

Mr Gundogan also cited the group's recent acquisition of the rubber-glove maker PolymerLatex in a £376m deal agreed last December as another reason for his stance, saying that "a takeover at this stage would jeopardise successful integration".

A slump of 60.2 points to 5,868.96 meant the FTSE 100 suffered a major fall for the third consecutive session, over which time it has lost more than 180 points. The idea that Italy could be the next member of the Eurozone to find itself in severe financial difficulties continued to spook investors, with IG Index's Ben Critchley saying they were concerned that they were "seeing a replay of what happened with Greece and Ireland, where soaring bond rates eventually ended up in a bailout".

Although Collins Stewart's Matthew Czepliewicz said the question of "whether the Italian fear that has gripped the banking sector is grounded remains to be seen", he did warn that Barclays was one of the most exposed to the country and the bank slid 6.3p to 227.65p. Lloyds Banking Group was not far behind, dipping back 0.98p to 43.87p, although Royal Bank of Scotland managed to put on 0.27p to close at 35.99p.

Despite the fact that at one point during early trading every single blue-chip stock had slipped into the red, by the bell a number of them had managed to tick up. Marks & Spencer was one, with the high street institution jumping forwards 4.3p to 373p with optimism high ahead of the release today of its first-quarter interim management statement.

The retail sector in general received a touch of support from data for June which showed like-for-like sales had dropped only 0.6 per cent year-on-year after falling 2.1 per cent the previous month. Next and Dixons Retail advanced 22p to 2,410p and 0.89p to 15.54p respectively, while J Sainsbury retreated just 1.7p to 323p as vague speculation suggesting its largest shareholder, the Qatari Investment Authority, could move for the rest of the company continued to do the rounds.

Another takeover favourite – the well-worn tale that Shire may be a bid target – was also making its presence known yet again after re-emerging earlier in the week, with the drugmaker staying steady at 2,002p.

BSkyB maintained its recent weakness, shifting 23.5p lower to 692p, as News Corp's proposed acquisition of the broadcaster was referred back to the Competition Commission amid the hacking scandal. A range of brokers cut their price targets for BSkyB, including Numis Securities, Investec and Royal Bank of Scotland, with the latter saying the latest developments "keeps the approval process alive [for the deal], but only just".

The holiday season may be in full swing, but any investors in Thomas Cook will have struggled to relax after the tour operator's profit warning saw it lose nearly 30 per cent of its share price. The group, which declined 34.85p to 87.85p, said its earnings for the year would be around £60m less than expected, and its rival TUI Travel was pegged back 16.5p to 204.7p.

The marketing group Aegis was driven up 2.9p to 157.5p, with Charles Stanley talking up its takeover potential. The company is currently in exclusive talks with Ipsos over selling its Synovate unit, and the broker suggested that if the disposal does go ahead, its remaining business, Aegis Media, would be "cleaner to acquire".

Meanwhile, concerns over the possibility that Misys' takeover talks with FIS Global could end without a deal being reached contributed to the software group slipping back 11.6p to 402p.

Down among the small-cap companies, Uniq spurted forwards 17.75p to 94.25p after agreeing to a 96p a pop bid from the Irish group Greencore.

Elsewhere, talk suggesting that Cove Energy may soon receive a approach from Royal Dutch Shell – down 36.5p to 2,209p – refused to go away, bumping the explorer up 2.75p to 97p on the Alternative Investment Market.