Market report: Grocers hit by 'ultimate bomb'

As a result, he cut his margin estimates for both Tesco and Sainsbury's.

Shaken by the escalating price war, the supermarkets moved against the wider FTSE 100, which closed up 28.84 points at 6,808.87. Dealers said that because the majority of Europe was closed for May Day, volumes were relatively low.

Even so, the M&A frenzy, which has driven the market in recent days, showed no signs of abating. A day after Heritage Oil agreed to be taken private for £924m, fellow explorer Salamander Energy, which focuses on south-east Asia, generated some excitement by revealing that it had put itself up for sale after receiving expressions of interest. Buoyed by the prospect of a deal, traders chased the small-capper 13½ higher to 147½p.

Unlike the oil and gas sector, the chemicals industry has so far seen relatively little deal-making, although analysts at JPMorgan Cazenove yesterday told clients they expected that to change.

“We believe the current macro environment, combined with strong balance sheets, slow organic growth, limited self help after years of heavy cost-cutting and the need to diversify away from commodities, may spur increased M&A.”

Johnson Matthey, up 86p at £33.59, Croda, 1p cheaper at £25.75, Elementis, 3.3 better at 280.6p, and Victrex, 3p higher at £18.64, are all potential targets, they said.

There was disappointment for those investors hoping for a takeover of Vodafone, off 3.3 at 220.65p in the wake of reports that US giant AT&T is eying a bid for DirecTV. The British company has been the subject of near-continuous takeover speculation in recent months, and AT&T had been viewed as a potential suitor, despite ruling itself out of a bid for six months in January. Traders said news of the DirecTV deal had dampened hopes the American company would approach Vodafone.

Conversely, consumer goods group Reckitt Benckiser, 108p better at £48.83, was in demand after missing out on a deal. The maker of Cillit Bang and Dettol had been viewed as a front-runner to snap up Merck’s consumer healthcare business, but Reckitt revealed following the close on Wednesday that it had ended talks. Analysts at Panmure Gordon reckoned that was no bad thing.

“We think the bidding had reached a level which was increasingly difficult to justify, and we think Reckitt was correct to pull out of the process,” the Panmure analysts said. The FTSE 100 group had been competing with Germany’s Bayer for the acquisition, a rivalry that was rumoured to have driven the price tag for the division to around $14bn. At that level, there would have been “an awful lot to do in terms of cost savings and sales growth to justify the price”, they explained.

ITV, meanwhile, benefited from a push from Liberum and rose 4.6 to 186.6p. The broker said feedback from a media buyer suggested the broadcaster will enjoy a stronger than expected World Cup.

Well-received third-quarter numbers from BSkyB lifted the pay-TV group 20½ to 900½p. Lloyds Banking Group also impressed investors with first-quarter results and closed 4.14 higher at 79½, a 5.5pc gain that was the biggest in the benchmark index.

Earnings had a similar effect in the FTSE 250, where both James Fisher and Sons, the marine and oil and gas engineering services group, and kitchens group Howden Joinery climbed 142p to £14.33 and 3.4 to 328.6p respectively, following upbeat trading statements. But full-year results from N Brown, the clothing retailer behind the Jacamo brand, were received far less warmly and the shares slid 26.3 to 486.7p. Statutory pre-tax profits edged up 0.9pc to £97.3m on a 6.4pc rise in revenues to £834.9m. Oriel Securities analysts told clients that “on the face of it, [this is] a slightly disappointing set of prelims”.

“However we are very relaxed with the increased levels of reinvestment in the core proposition and the US, which was always going to hold back pre-tax profit this year”.

Similarly, first quarter results from Lancashire Holdings weighed on the insurer, down 16 to 684p.

Elsewhere among the mid-cap fallers, London estate agency Foxtons slid as much as 4.2pc amid talk that private equity backer BC Partners was selling down part of its stake. Traders heard that some 22m shares were placed at about 310p a piece. Foxtons rallied to close up 6.4 at 324½p.

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