MARKET REPORT

Dixons moves to front of High St takeover queue

THE future of Marks Spencer may still hang in the balance but the City is already casting around for the next takeover target in the High Street.

Some seem to think they may already know. One of the City's biggest players, Anglo-Swiss broker UBS, sees Dixons as a target and has been telling clients just that. Shares of the electrical retailer led the top 100 companies higher with a rise of 4p to 160p, just 8p off its year's high, as more than 10 million shares changed hands. UBS has raised its recommendation from neutral to buy and pushed up its 12-month target by 10p to 180p.

It says: "Funds are now available to private equity firms and the emergence of consortium structures all suggest that the retail buyout deals could get bigger."

UBS reckons Dixons offers the best combination of low valuation, improving fundamentals and appeal to the private equity specialists. Trading conditions have improved, along with the outlook for sales of personal computers, mobile phones and digital goods. Dixons also boasts cash equivalent to 10% of its Pounds 3 billion stock market value.

Boots, 1p firmer at 663p, is also seen vulnerable to buyout specialists but UBS has ruled out Great Universal, 1/2p higher at 8431/2p, and Kingfisher, 1/2p better at 2921/2p, due to "funding capacity".

The private equity specialist would also be deterred by Next's strong management. Its shares were 2p dearer at 1409p.

Meanwhile, the City has given a lukewarm response to the improved terms from billionaire shopkeeper Philip Green for Marks Spencer, down 51/4p at 3571/4p. The cash offer is now pitched at 370p, valuing MS at Pounds 8.4 billion. Shareholders can opt for the part-cash/ part stub equity offer in bid vehicle Revival, but it is thought unlikely any will accept.

There was some big turnover in MS shares yesterday ahead of the new terms being rejected by chief executive Stuart Rose.

Share prices generally posted modest gains despite a lacklustre performance on Wall Street overnight. London's FTSE 100 index rose 8.2 to 4499.3. Once again, trading conditions proved thin with Royal Ascot making a welcome diversion for many investors.

Yesterday's flurry of speculative buying in ITV has boiled over, the price retreating 3/4p to 1013/4p.

Marketmakers say there has been a big seller doing the rounds who has now completed his business and no longer overhangs the market. But Deutsche Bank has downgraded ITV from buy to hold and slashed its target from 150p to 115p.

Speculators have been pinning their hopes on a bid for the independent television broadcaster created by the merger of Carlton and Granada earlier this year. They say the US companies Hallmark and Viacom are in the frame.

Some in the City are far from convinced.

It was the first day of trading on AIM for Biofuels Corporation, which is building plants to produce biodiesel. It is raising Pounds 15 million via a placing of 20 million shares at 75p by broker Collins Stewart. The shares opened at 771/2p.

Alpha Airports marked time at 841/2p after 3.07 million shares went through as part of a cross at the same level. The company recently went through a major restructuring.

LogicaCMG rose 33/4p to 188p after broker Credit Suisse First Boston urged clients to buy the shares ahead of results later today from its rival Accenture in the US.

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