More takeover rumours lift Unilever

Bid rumours were swirling round Unilever again yesterday after a leading broker said that the Anglo-Dutch consumer goods company could be a takeover target for the venture capital industry.

With a combined market value £40bn, Unilever has been considered too big to suffer the indignity of being acquired by a private equity consortium, carved up and refloated. However, the brokerage Collins Stewart believes it is possible even though Unilever is saddled with a €5bn (£3.4bn) pension fund deficit.

In a detailed research report, the analyst Rob Mann argues that a bid pitched at 735p - a 25% premium to yesterday's closing price - could generate an internal rate of return of 23%.

Mr Mann says this assumes that the private equity consortium is able to dispose of the bulk of Unilever's food business and restructure its consumer products division with a review to relisting it in three years time.

Even if a buyout bid does not materialise, Mr Mann says the possibility that it might could be enough to prompt the radical change at Unilever that shareholders are demanding. "There are no reasons why the disciplines that would be imposed by private equity owners cannot be replicated by a public company," he says. With Mr Mann lifting his rating on Unilever to "buy", the shares rose 3.5p to 583.5p.

In the wider market, the FTSE 100 closed 29.5 points higher at 5,693.2, lifted by an overnight rally in Tokyo and a strong performance from the mining sector, which tracked metal prices higher. Four of the FTSE 100's five biggest risers were mining stocks with Kazakhmys, up 45.5p to 861.5p, the pick of the bunch. Elsewhere, the FTSE 250 climbed 108.8 points to 8,955.6, while the FTSE Small Cap index added 19 points to 3,409.8.

International Power proved to be one of the main talking points, as its shares advanced 14p to 276p on rumours of a bid approach from a European rival.

Rumours of stake-building by Warren Buffett excited Lloyds TSB, up 13.25p to 516p, although traders reckoned the rise also owed something to the fact that Lloyds' prospective dividend yield is 6.6%. "With bond yields under pressure that looks increasingly attractive," commented one trader.

Kingfisher, another stock with a decent dividend yield, was also in demand. Its shares rose 4p to 239.25p, extending gains over the past 10 days to 5%. Traders reckon that the strong performance has been caused by a "bear squeeze". As rumours of poor trading have swirled around the market, the number of Kingfisher shares on loan to short-sellers has moved up from about 1% of the company's issued share capital to almost 5%. However, because the rumoured profits warning has failed to materialise, hedge funds have been forced to back their positions.

Hilton Group firmed 1.25p to 370.5p on rumours of further private equity interest in its Ladbrokes betting arm. Hilton shareholders are due to vote on the £3.3bn sale of its hotels arm to the US sister company Hilton Hotels Corporation a week today.

On the downside, concerns that next week's trading update will disappoint saw Vodafone, the world's biggest mobile phone group, drift a further 2.25p to 121.25p, while British Airways shed 5.25p to 316p after Cazenove downgraded to "in-line", citing concerns about the airline's pension fund deficit.

Away from the blue chips, the recent strong run of pubs and restaurant group Whitbread continued. Its shares, 949p at the start of the month, gained 25p to £10.28 in heavy volume as private equity bid rumours did the rounds again.

Traders said the speculation had been fuelled by the fact that Whitbread's has not bought back any shares since December 23 and a research note from Cazenove. Following a dinner with the company on Wednesday night, Cazenove said Whitbread would have to embark on further disposals or face a break-up bid from a private equity group.

Countrywide, the estate agency group, was marked 20p higher at 417.5p as Panmure Gordon drew investors' attention to Wednesday's RICS survey, which showed a further recovery in the residential property market.

Spirent, the telecoms testing specialist, firmed 0.75p to 51.75p following strong results from its US competitor Teradyne. The stock was also supported by a research note from UBS, which said the company was a potential takeover target on account of its broad product range, diverse customer base and lowly valuation. On top of that, the Swiss brokerage pointed out that Spirent had a sizeable £170m net cash balance.

Earthport, the payment-processing group, firmed 2p to 43p amid talk that the appointment of Canaccord as broker is the prelude to a deal with NETeller, 21p stronger at 883p. Canaccord is also NETeller's broker.

Future Internet Technology, the cash shell in which the financier Robert Bonnier has a 14% holding, improved 3.25p to 41.5p on news that it is seeking to raise about £50m via a share placing at a small discount to the current share price. Traders believe the proceeds will be used to fund a deal in the acquisition of an internet telephony company in the United States.

New Star treatment

Traders piled into Aberdeen Asset Management yesterday afternoon. Over 19m shares changed hands amid talk that it could be a takeover target for New Star Asset Management, the fund manager controlled by John Duffield. However, market professionals believe dealers have their wires crossed and the two companies are in fact set to join forces to make an offer for the UK assets of Gartmore. Analysts reckon a joint bid for Gartmore would also make sense as neither company wants to own the whole business. They also noted that Mr Duffield and Martin Gilbert, the chief executive of Aberdeen, worked together before when they carved up Edinburgh Fund Managers. Aberdeen, which holds its annual meeting today, rose 5.5p to 150p, while New Star improved 1.5p to 328p.