Suspicions grow of split at BAT

The FT-SE 100 index fell 8.6 points to 3,217.6.; the FT-SE 250 index gained 8.6 to 3,526.2. Turnover was 742.2 million shares with 23,326 bargains. Government stocks were lower.

The stock market is beginning to scent developments may be afoot at BAT Industries, the financial services to tobacco giant. The shares, deceptively firm in often active trading, rose 2p to 472p, a 30p gain since Compagnie Financiere Richemont produced its offer for Rothmans International.

Once Rothmans is absorbed into the Richemont portfolio of interests, BAT will reign as the UK's only quoted tobacco group. There is a growing suspicion it will use its new role to finally break with its days of heady diversification - splitting itself into two.

The market is unclear whether it will attempt a Hanson, putting its international tobacco business and its Farmers insurance side into a US quoted company with the rest (mainly Allied Dunbar financial services and Eagle Star insurance) wrapped up as a UK-quoted operation.

The other possibility is a straight-forward split between financial operations and tobacco with the acquisition of a leading Continental cigarette group thrown in to add excitement.

Such moves would bring down the curtain on BAT's diversification programme that embraced paper and retailing before the advent of Sir James Goldsmith and friends caused a desperate rethink.

Richemont's desire for Rothmans has underlined the cash-generating abilities of the tobacco groups. BAT could take the view its two halves would, with improved share ratings, be worth much more than the present group.

BAT's first-quarter results are due on Wednesday. Barclays de Zoete Wedd expects £490m against £420m and says the shares are undervalued on the basis of the Rothmans bid.

The rest of the stock market suddenly lost its glow. In early trading, on the back of much better-than-expected Imperial Chemical Industries figures, the FT-SE 100 index climbed 15.3 points with ICI up 26p. But doubts whether the chemical group could keep up such a heady pace soon eroded confidence and ICI ended 1.5p down at 756.5p.

The run-back tended to erode confidence and the rest of the market drifted lower with the FT-SE 100 index ending 8.6 points down at 3,217.6.

Strengthening fears interest rates will rise next week and the G7's inability to offer solace to the currency markets were other inhibiting influences.

British Steel was the busiest traded blue chip, with Seaq putting volume at 46 million shares. Buy recommendations are circulating but there are also rumours of corporate activity. The price rose 1.75p to 165.5p.

BAA, the airports group, tumbled 16.5p to 465.5p with ABN Amro Hoare Govett, the house broker, said to have downgraded. Great Universal Stores was off 4p at 596p with Hoare Govett again said to have done the damage.

Reckitt & Colman rose 8p to 634p on talk the sale of its Colman's food and Robinson's soft drink operations is near. The divisions were put on the market in September with, it is thought, a £400m asking price. Bass, the brewing and hotel group, has emerged as the favourite to strike. Its shares firmed to 551p. Wolverhampton & Dudley Breweries rose 13p to 517p on the hotels sale to Regal Hotels. Ladbroke, the betting and hotel group, rose 4p to 178p on James Capel support.

Asda, strong recently, retreated 2.25p to 80.25p as Smith New Court said it was time to take profits; Smith also hit Inchcape, down 9p at 325p, which had been strong on bid and recovery hopes.

Television shares brightened on renewed hopes of changes in the TV ownership restrictions; house builders were stirred by suggestions of Government moves to revive the housing market.

In a flat oil market, Kelt Energy gained 5p to 49p on the mop-up takeover bid; electrical retailers were ruffled by the Office of Fair Trading probe into sales of electrical goods.

Christie International, the auctioneer, was pushed 18p higher to 166p in busy trading. Chunky lines of stock went through at the higher price. Danka Business Systems was another in demand with US buying said to be responsible for a 17p jump to 405p. AAH, the chemists chain, was busily traded with indications Cazenove was attempting to buy more stock for hostile bidder, the German Gehe group. Turnover was printed at nearly 7 million shares with the price shading 2p to 435p. At the last count, Gehe was approaching 30 per cent.

In the other active bid situation VSEL, the shipbuilder, climbed to yet another peak, up 19p to 1,694p. Whitehall clearance for the British Aerospace offer is expected any day. BAe ended 4p higher at 538p with speculation of a GEC bid still in the air.

Aerostructures Hamble, one of the worst of the batch of new-issues flops, was 3p lower at 30p after it said its problems were poised to continue.

Betterware's results left the shares down 3.5p at 43p. Stagecoach lost 2p to 197p as the Government insisted it should sell its 20 per cent interest in the SB Holdings bus concern.

Sterling Publishing, the magazine and reference books group, improved 5p to 30p as the Co-operative Retirement Benefit Fund declared a 6.4 per cent interest. Despite its name the fund is not a passive investor but the vehicle for entrepreneur Duncan Saville. He was involved in the Phoenix Timber revamp and has nearly 30 per cent of Bridgend, the bathroom fittings group.

Insurers look set to receive another blow, this time from contaminated land claims. The Government is quietly pushing through new regulations that should become law in the summer. They could lead to a flow of claims based on old policies. James Capel is thought to have produced calculations uncomfortable for Commercial Union, up 8p at 555p and Royal Insurance, firm at 304p.