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Dose of takeover fever is needed

INVESTORS in housing and construction shares must be hoping that last week's bid for SGB triggers more widespread bid activity in the sector.

Shares across the sector remain bombed out and a growing number of analysts believes that the chief hope for the sector is a revival in merger or bid activity.

Yet since talks between McAlpine and Bryant fizzled out several months ago, there has been no significant bid activity in the housing or construction sector other than the management buy-out proposal at Fairview.

Indeed, it is not clear what will prompt significant consolidation in the sector.

Most of the heads of large contractors are not convinced of the case for mergers to create larger groups. While companies that have pursued business with a large repeat element such as facilities management and maintenance - notably Amey and WS Atkins - have been rewarded with a premium rating for their shares.

Those that remain heavily involved in new work - which is regarded in the City as high risk and low margin - have continued to see their share prices held back. Amec, Balfour Beatty and Carillion stand out as prime examples of this.

The temptation for contractors keen to revive their share prices must be to pull out of new work and focus purely on maintenance and services.

But this would be at odds with the demands of their major clients, which are keen for major contractors to remain responsible for all elements of the construction process, including new build.

WS Atkins' early interest in Bovis Construction was a reflection of this.

Unless the prejudice against those involved in new work lifts, the best hope for shareholders in the major contractors is that low share prices in the sector will flush out overseas bidders.

And for the companies themselves, while a low share price does not help corporate morale - and it does not help them raise funds either - in itself, it should not be a major handicap to winning new business.