Takeover talk and rate fears move market

Investors faced a fairly volatile time today, with continuing interest rate worries, new takeover developments and a host of brokers' notes arriving in City inboxes.

Anyone holding shares in Enodis, which makes kitchen equipment for the likes of McDonald's, was feeling burned. The shares have run up sharply recently on hopes the company would be taken over by one of two US rivals. First came a 195p-a-share offer from Middleby, which was topped by a 210p cash bid from the food services business Manitowoc. When Manitowoc raised its offer to 220p, valuing its target at £892m, Enodis agreed to let the company look at its books. But last night, after the market closed, Enodis said the two sides had been "unable to reach a mutually acceptable solution that ... satisfactorily addresses certain regulatory risks".

Middleby is still around but has said it would not make a hostile offer. Enodis shares plunged 37.5p to 179.5p, a 17% drop.

Still on the takeover front, the leisure group Rank added 7p to 207.5p on talk the company was undervalued and vulnerable to a bid. UBS has said the shares could be worth 240p each.

Lower down the market came a real bid. The telecoms group Fibernet jumped 13.5p to 52.5p as it confirmed receiving an approach. The company recently revealed an error in the way some costs associated with three customers' contracts were accounted for, which would hit full-year earnings for £700,000.

The subsequent fall in its price, and the fact it has about £13m of cash in the bank, has made it attractive to a predator, said analysts. The talk was of a bid of about 70p a share, possibly from a private equity bidder (the usual suspects in these cases) or a US operator. Bridgewell analysts said possible predators could be a British rival or US groups with a UK presence, such as Level 3, Global Crossing or MCI.

Overall, the market was caught in a two-way pull. Yesterday's decision by the US Federal Reserve not to raise interest rates was partly welcomed but also stoked fears that growth in the American economy was weakening, which would hit company profits.

The Bank of England's inflation report this morning seemed to suggest there may be a need for UK interest rates to rise marginally again before the year-end. But analysts said the report did not seem to be unduly hawkish.

Simon Wallace, an economist at the Centre for Economics and Business Research, said: "[The Bank of England governor] Mervyn King's insistence that [the Bank] remains ready to take whatever action might be necessary in the future would lead some to suggest that another rate rise is likely. However, the claimant count continues to trend towards the 1 million mark, helping to reduce wage inflation pressures. Also, as the Bank believes that energy prices will subside to a more sustainable level in the medium and long run, another rise might be going a step too far."

So by the close the FTSE 100, which had been all over the place during early trading, managed a 42.4 point gain to 5860.5. Sentiment was helped by a positive start on the Dow Jones Industrial Average and the US Nasdaq technology market after stronger than expected results from Cisco Systems and entertainment group Walt Disney.

Miners were weaker in the wake of the strike at Chile's Escondida copper mine, while online gaming companies were also under pressure. Reports that the Austrian online betting operator bwin Interactive Entertainment could lose its German betting licence sent jitters through the sector once more, with PartyGaming down 6p to 112.25p and rival 888 Holdings 8.25p lower at 156.75p.

The software group Sage edged up 0.25p to 222.25p after announcing the £297m acquisition of the Florida-based Emdeon, which provides computer services to doctors' practices. Analysts were not overwhelmingly positive on the move. Bridgewell said: "This is a new area of business ... for Sage and effectively brings it into competition with Misys in ... a market that Misys views as a slow growth area."

British Airways was 11.75p higher at 390p as UBS raised its price target from 420p to 500p. In a 28-page note, UBS raised its forecasts for 2008 profits by 16% - 20% above the market forecasts. "We think the consensus earnings forecasts will have to rise," said UBS. "Our new price target is based on discounted cash flow valuation and assumes a settlement with the unions on pensions."

It added: "Pension negotiations start in earnest in September. Meanwhile, we believe BA has already secured some cost savings that will go with the move to Terminal 5 in March 2008."

Barclays added 11p to 644p as Deutsche Bank increased its valuation on the shares from 710p to 750p and advised clients to buy.

ITV topped the FTSE 100 leaderboard, up 4.25p to 102.5p as its figures came in better than expected, not that anyone had expected too much in the first place.

Insurer Resolution added 7p to 567p as it announced a 95% take-up for the rights issue to fund its purchase of Abbey National's life insurance business. The rump of the shares were successfully placed by Citigroup and Goldman Sachs at 563p a share.

The problems of doing business in China were again illustrated today, this time by Xaar, which makes parts for inkjet printers. Xaar said some of its Chinese customers, accounting for 15% of its total revenues, were being investigated by Chinese customs authorities over alleged non-payment of import duty.

The investigation is being coordinated by central customs not local officials, as Xaar originally thought, which means the length and extent of the inquiry is likely to be longer. "This is likely to increase ... its impact on current trading, which remains below expectations," said the firm.

Teather & Greenwood analysts said: "This looks bad to us. In our view, this stock is clearly not a buy until this situation is resolved, which could take some time." Meanwhile, Panmure Gordon slashed its target price from 250p to 140p. In the market Xaar slumped 37.75p to 117.25p, a near 25% fall.

The salvage company Subsea Resources added 6.5p to 40.5p on news that it has started recovering copper from a wreck off the coast of Spain, and it expects to sell the material at close to the current spot prices for the metal.

Technology recruitment group Spring added 1.5p to 51.75p on news that Peter Searle, who joins as chief executive on 1 October, has spent £500,000 on buying shares in the company at 49p each. The company has agreed to match the purchase of these 1m shares, which will vest three years after he joins.

Solar Integrated Technologies, which makes solar-panel roofing systems, has finally put itself in a more secure financial position. It has received $4.7m (£2.5m) from GE Energy Financial Services after supplying roofs to three additional schools in San Diego as part of a project with GE. "The funding supports our near-term working capital requirements," said the company. The shares slipped 1.5p to 48p.

Finally, more fun and games at Regal Petroleum, up 1p to 84p. Regal has sold 15% of its subsidiary RPC, which is the holding company for its controversial Ukrainian licences, to a British Virgin Island registered company Alberry for £100,000. Under the terms of the deal, if Alberry wins all the legal battles over Regal's rights to the licences within 15 months, Regal will buy back the 15% stake for $51m in cash or shares. If Alberry fails, Regal will buy it back for £50,000 in cash. Quite who is behind Alberry is not immediately clear. All Regal's directors were unavailable for comment today.