Market report: Monday close

ANGLO-Swedish drugs giant

It emerged over the weekend that three rival drug companies have been given the go-ahead by US regulators to develop cheap copycat versions of AZ's breast cancer treatment. Dealers warn that such a move will make a big dent in group profits.

The group also has come under fire amid allegations of a cover-up over the side effects of its cancer treatment Iressa, linked to almost 200 deaths in Japan. The entire drugs industry is feeling the heat from New York Attorney General Eliot Spitzer, who is looking into their sales practices. Spitzer was the man who forced Wall Street investment banks to cough up $1.5bn (£952m) after complaints about investor research abuses.

Share prices traded in narrow limits for much of the day. The FTSE 100 index fell 25.3 points to 3701.8 as Wall Street wiped out much of Friday's gains this afternoon.

Six Continents slipped but then recovered to end unchanged at 625p as a battle for control of the pubs and hotels chain began to shape up. Entrepreneur Hugh Osmond, the man behind Punch Taverns and Pizza Express, is thought to be compiling a £5.7bn cash-and-shares offer and is expected to meet Six Continents this week.

Hilton Group, down 5p at 153p, is also said to be interested in bidding despite the breakdown in merger talks last year. Brokers say Hilton may decide to team up with Osmond, leaving him with the pubs. Private equity group Kohlberg Kravis Roberts is also seen as a potential bidder. It has abandoned plans to make a bid for supermarkets chain Safeway, 5p cheaper at 305 1/4p, and will concentrate its fire on Six Continents, where it sees more value. Another venture capitalist, Blackstone, has also expressed interest.

Meanwhile, City speculators were continuing to build up a healthy appetite for Pizza Express, 2p better at 339 1/2p, as Amvescap topped up its holding with 137,000 shares at 337p. It is hoped the proposed management buyout, or an outside bid, will be on this week's menu. The banks tell me they have little appetite for a bid. Prospective backers among them are cool about financing the management, fearing that a war in the Middle East will further damage the tourist trade.

Drinks group Diageo hardened 1p to 631p. Goldman Sachs has repeated its in-line rating on the shares while raising its earnings forecast for 2003 from 46.7p to 47.8p a share. Credit Suisse First Boston has cut its target price on Scottish & Newcastle, steady at 367p, from 385p to 350p.

Britannic rose 1p to 148 1/2p and Legal & General was up 1p to 74 1/4p following indications from South African financial services outfit Old Mutual, 1/4p better at 89 3/4p, that it is seeking acquisitions. Finance director Julian Roberts said the company was in no rush and would aim for the right target.

Royal & SunAlliance retreated 6 1/4p to 78 1/4p. Lehman Brothers has repeated its 'underweight' recommendation and is concerned that next month's results may contain some nasty surprises.

Luton Airport operator TBI touched 48p before reverting to an unchanged 44p after denying it was in bid talks. South African stockbroker Investec rose 22 1/2p to 682 1/2p after assuring shareholders that it was performing well despite stock market conditions.

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