Alliance & Leicester has the worst rate of profitability among any of the British banks and has yet to find a replacement for Richard Pym, its outgoing chief executive. Perfect investment criteria, according to UBS.

Shares in the mortgage lender climbed 36p to £11.83, the best level in a year, as UBS started coverage with “buy” advice based on hopes that a predator would emerge. It told clients: “We see the strong brand, extensive distribution network and large deposit base as being strategically attractive assets. We believe the upcoming change in management may provide the catalyst for the business to reassess its outlook and crystallise some of this potential.”

UBS said that National Australia Bank was the most likely to make an approach for Alliance & Leicester, followed by Northern Rock, Crédit Agricole, of France, Bank of Ireland and Santander, of Spain. While shares would be worth only £11.77 on a standalone basis, an auction could squeeze the price up to £17, the broker said.

BT Group provided the day’s other bid theory, with shares up 10½p to 317¾p on revival of leveraged buyout talk. That was despite BT continuing its share buyback yesterday – suggesting that nothing had changed since Sir Christopher Bland, the telecoms group’s outgoing chairman, said last week that there had been no offers.

Dealers connected the strength in BT to an agreed bid over the weekend for Alltel, the American operator, from TPG Capital, the private equity group, and the buyout unit of Goldman Sachs. Not only did the $27.7 billion (£14 billion) deal set a new ceiling for buyouts in the sector, the valuation – about 16 times operating cash flow – looked generous against some European peers.

BT has regularly been mooted as a target for a financial buyer since its move last year to separate out Open-reach, its utility-like network access business, underlined its ability to carry more debt. However, with the shares already at 20 times the operating free cash flow, a 20 per cent premium to its sector, some analysts questioned how much of the potential was already in the price.

It was a down day on the wider market, with the FTSE 100 index slipping 30.2 points to 6,606.6 as Marks & Spencer headed the loserboard. Its year-end results showed core UK sales growth below some City forecasts and avoided any mention of the retailer’s £4 billion property portfolio, sending shares down 35p to 703½p.

GlaxoSmithKline faded 19p to £13.71 as brokers cut forecasts in reaction to a study claiming that the Avandia diabetes treatment, its second-biggest seller, increased the risk of heart attacks. Vodafone fell 0.8p to 144.6p after Citigroup said that the mobile phone operator would use annual results next week to rein back investors’ 2008 profit margin expectations to emphasise sales growth. The broker added that, with share buybacks, higher dividends and significant strategy news looking unlikely this time around, shares could be vulnerable to disappointment.

Today’s European Parliament vote on roaming regulation provided another reason to be cautious on mobile telecom stocks. While Vodafone is among the few operators to have preemptively cut tariff prices between European nations, sector-watchers still anticipated some volatility as the numbers are crunched.

Standard Chartered beat the day’s weak trend on a gain of 42p to £16.44 as bid speculation was given another airing.

Rank Group stood out among the mid-caps, rising 8¼p to 203¼p after Merrill Lynch added the gaming group to its “buy” list. The potential abolition of VAT for bingo operations and the introduction of new gambling machines could push shares back towards 220p, it told clients.

— New York: Wall Street was choppy, with investors pleased about the latest round of takeover activity but hesitant to take the market sharply higher ahead of new economic data. At the close, the Dow Jones industrial average was trading at 13,540.00, down 2.90 points.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive