The attractions of the British hotels sector looked rosier yesterday as news of the proposed sale of Hilton Hotels Corporation moved analysts to speculate on the prospect for further takeover activity.

InterContinental Hotels and Whitbread stood out among the large-cap risers. Of mid-cap stocks, Millennium & Copthorne pushed higher.

Blackstone’s agreed $26 billion (£13 billion) deal for Hilton valued the hotels giant at a 32 per cent premium to its closing share price before last night’s announcement.

The deal flagged up the interest of private equity bidders in the sector and highlighted their willingness to pay a full price. City analysts said that the Hilton deal raised the prospect that financial buyers could pay similar premiums for other hotel groups.

InterContinental Hotels has been the subject of takeover rumours before, heightened over the past year after Ellerman Corporation, an investment vehicle of Sir David and Sir Frederick Barclay, built up a 10 per cent stake in the hotels operator.

Merrill Lynch told clients that the Hilton deal had positive implications for asset-backed hotel operators, implying that the likes of Whitbread might be a more likely bid target.

InterContinental owns only 24 of the 3,734 hotels that carry one of its brands, which include Crowne Plaza and Holiday Inn, whereas Whitbread, which owns the Premier Travel Inn chain, still owns its hotels. Merrill Lynch has a £24 per share target price on Whitbread, on a sum-of-the-parts basis, supported by recent takeover multiples in the sector.

InterContinental Hotels closed up 49p at £13.07 while Whitbread was 52p firmer at £18.05. Millennium & Cop-thorne put on 52p to £18.05, The FTSE 100 index closed up 33.3 points at 6,673.1. British Airways put in the best performance after it reported on June traffic figures. The airline said that traffic in premium seats had risen 1.4 per cent against the same month last year, with economy traffic down 1.9 per cent in the month. It also said that while the weak dollar was “not helpful” to revenues, it was having a positive impact on costs. BA shares rose 22p to 440½p.

Retailers came in for selling before today’s interest-rate decision from the Bank of England’s Monetary Policy Committee, expected to result in a quarter-point rise to 5.75 per cent. Kingfisher, the B&Q owner, fell 1p to 225¾p; Home Retail Group, owner of Argos, dipped 3¼p to 466½p.

Next dipped 11p to £19.99 after Citigroup cut its target price on the stock from £23.00 to £22.00, with an unchanged “hold” rating. The broker told clients that a weaker outlook on consumer spending had prompted it to cut its like-for-like sales forecasts from 1 per cent growth to a 2 per cent fall in the second half of the year. Analysts said that while the management was handling changing trading patterns well, the company was undergoing a longer-term reduction in growth trend from 13 per cent per year in the 2000 to 2006 period, to 4 per cent per year growth between 2006 and 2009.

ITVwas ½p lower at 114½p after the broadcaster reported a 5 per cent drop in net advertising revenues in the first half of the year. Net advertising revenues were down 9 per cent to £595 million at ITV1.

Punch Tavernsand Enterprise Inns moved higher for a second consecutive day. The pub operators gained from positive sentiment towards companies that could go on to tap the value of their property portfolios. Greene King renewed talk on the subject on Tuesday after it said that it would seek to create a property joint venture for the pubs it owns that are not yet securitised. Punch Taverns rose 38p to £13.00 yesterday while Enterprise Inns was up 13½p to 700½p. Investors took profits in Lonmin, down 74p to £42.36, as rumours of bid interest from Xstrata, up 5p to £31.09, faded.

–– American stock markets were closed for Independence Day.

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