Market Report: Takeover talk buoys Yorkshire Water

THE MARKET was excited by bid rumours from "up North" yesterday as predators were said to be circling Yorkshire Water. The utility bucked the trend of a sharply falling market and gushed 16p higher to 497.5p.

According to City leaks, rivals are sniffing around Yorkshire. The UK group Midlands Electricity is the market's favourite, although some less insular dealers muttered that a European or US group could strike.

The trigger for any corporate action will be next week's price review by watchdog Ofwat. Most experts predict that water companies will be hammered by the regulator's proposals for tough price cuts.

However, the arrival of the long-awaited Ofwat review will remove the cloud of uncertainty which has been hanging over the sector and could start a round of corporate action. If the takeover floodgates open, Yorkshire, soon to be renamed Kelda, could be one the first company to be swallowed up.

Supporters of a bid from US-owned Midlands pointed out that the electricity group has made no mystery of its desire to expand in water. This strategy was given a boost a few weeks ago when Midlands' feuding parents, the US groups GPU and Cinergy, made peace. Under the deal, New Jersey-based GPU bought Cinergy's 50 per cent stake in Midlands. Cinergy had been opposed to the acquisition of a water company and its disappearance from Midlands' share register left its management free to pursue its diversification dreams.

If a foreign rival pips Midlands to the Yorkshire post, the power group could turn to Severn Trent, down 3p to 978p. Sector peer Anglian Water was also buoyed by vague bid talk, rising 15p to 748p.

The rest of the market took another sharp tumble as sellers gained the upper hand for the second consecutive day.

The FTSE 100 shed 91.7 points to 6,392.0 as bearish US economic data and fears over equities' valuations depressed sentiment. Sharp falls in US techies' stocks also contributed to the malaise. The FTSE 250 did better, finishing 17.4 lower at 6,072.5, while the Small Cap lost only 1.6 to 2743.7.

Marks & Spencer's fell 15p to 373.75p amid suggestions that some of its staff were selling stock received in the latest profit-sharing handout. The struggling retail giant was hit by a wave of small deals, with some orders totalling as few as nine shares.

Another fallen giant, the magazine publisher Reed International roared back with a 37p rise to 492.25p. The market was ecstatic at the news that it has poached the chief executive of media agency Aegis after a year-long search. Poor old Aegis lost 6p to 140p.

The rising big hitters were few and far between. Caterer Compass served a 21p rise to 652p on revived whispers of an offer from Rentokil, up 1p to 244p. Allied Domecq frothed 17p better to 592p after the pubs saga ended with the sale to Punch Taverns and Bass, down 4.5p to 934p.

Software designer Misys bucked the techies' malaise and rose 7.5p to 617.5p on a WestLB Panmure push ahead of tomorrow's results. An intriguing rumour suggested that Misys could be the mystery predator stalking smaller rival JBA, up 16.5p to 197.5p. Engineer Invensys firmed 7.25p to 334.5p as HSBC said it might upgrade after Friday's annual meeting. Talk of big disposals is still there.

A raft of competition inquiries unsettled several blue-chips. Unilever melted 16.5p lower at 596p after the watchdog raised the prospect of a spin-off of its Wall's ice-cream unit.

Alliance & Leicester ignored the feared Government investigation into the mortgage market and moved up 8.5p to 839.5p on talk that Friday's results will be good.

Rail maintenance group Jarvis shed another 8.5p to 280p. The market is worried that a contractual dispute with Railtrack - down 1p at 1181p - is harming trading.

A buy order by a leading European fund manager combined with a stock shortage to push Photo-Me to the top of the midcap-risers chart. The picture booth group clicked 65p higher to 1100p. Electrocomponents surged 20p better to 540p on vague bid talk, while old chestnut Rank rose 7.75p to 270p on a Deutsche Bank push and continuing break-up whispers.

Electronics Boutique firmed 1.75p to 97.25p on rumours of stakebuilding by a large investor. Disappointing sales from Debenhams, down 11.5p to 391.5p, hit rival clothes chain New Look, 10p lower at 232.5p. Mail order group N Brown suffered a 17p setback to 366.5p in sympathy.

Internet minnow A Shaw vindicated the bears' fears, losing 0.88p to 5.62p after a mini profit warning. Luxury handbag maker Mulberry jumped 12.5p to 51p after a marketing tie-up with US rival Kravet, while textile tiddler Hicking Pentecost surged 20p to 227.5p after US bidder Ruddick trumped an offer from Coats Viyella, down 0.25p at 44.25p, with a 226p-per-share bid. The market believes Coats could reply with a higher bid.

SEAQ VOLUME: 1.23BN

SEAQ TRADES: 81,654

GILTS INDEX: 106.72 +0.10

SCOOT.COM, the telephone directory service, yesterday rang up a 10.75p rise to 50.25p - within a whisker of its 51p record - on a mixture of fact and rumours. The fact is that Merrill Lynch initiated coverage with "buy" advice and 87p price target. The broker likes the company's dynamic management and business model. The rumour is that Scoot's management is negotiating a link with a larger rival, with some daring traders mentioning the name of US behemoth Microsoft.

THE TRAIL of a merger between the drug groups Medeva and Shire Pharmaceuticals appears to have gone cold. After the Medeva board rejected a tentative offer by Shire, punters were betting on a hostile bid in the near term. However, Shire is now believed to have turned its sights elsewhere, possibly to the US, in the hope of returning to Medeva at a later date. Further news could be released today, when Medeva reports results, or on Friday, when Shire is on the block.