Tempus: A Monopoly Sweetener For Tate & Lyle

There should be quite a bit more sweetness and light round at Sugar Quay, Tate & Lyle’s headquarters, after yesterday’s Monopolies and Mergers Commission’s report.

True, Tate will not now be able to gain control of Britih Sugar. But then it cannot be amazed about that.

Nor can it look forward to a unified British sugar industry which could perhaps speak more effectively for its interests in Brussels than either company could individually.

But it has not come out of the MMC review empty-handed. It has a long last got some official recognition that it gets a raw deal under the CAP sugar regime.

The MMC has recommended that steps be taken to increase the cane-refining margin. In this cannot be done at Community level, it suggests a subsidy either to the cane suppliers or direct to the refiner.

But subsidies can disappear overnight with a change of government. So Tate would much prefer to see changes in the legislation which would give it protection from the effects of a price war with high margin beet sugar producers.

When beet margins are pounds 60 a tonne and cane pounds 20, Tate & Lyle can survive. Take pounds 15 off each margin, and the cane refiner comes periously close to losing his margin altogether, while the best sugar producer still makes enough to remain comfortably in profit.

Tate had to endure the damaging effects of a price war last year and had no desire to repeat the experience. This year margins, to quote Tate, and ‘not far from being adequate’ which probably means that they are quite good. For the current financial year analysts are therefore looking for pretax profits of pounds 90 million to pounds 100 million.

Further in the future, there is the enticing prospect of Tate’s new sweetener, Sucralose. The shares stand on a 30 per cent discount to the market, a rating which is undrservedly low.

Once Ferruzzi has reduced its stake in S & W Berisford, the latter company will be left with two shareholders with 15 per cent each. Ferruzzi and Tate. They may protect Berisford from a bid, or encourage one.

In the meantime, the market for Berisford’s shares will be weak as the Ferruzzi position in unwound. The shares stand at just half the market multiple, but with no obvious bidder in sight, they still look expensive.

Mr Tom Cowie, the motor dealer and former Sunderland Football Club chairman, has more or less abandoned plans to float off his contract hire and leasing business.

And well he might. As was revealed yesterday, the finance arm of the T Cowie motor dealership group is in sparkling form.

The 21,000 cars in the contract hire fleet – second only in size to Dial Contracts, a subsidiary of Barclays Bank – is Cowie’s fastest-growing area and chipped in profits of pounds 5 million, up from pounds 2.7 million, towards a group total of pounds 8.2 million. This was a greater-than-expected rise of 102 per cent over the previous year and sent the shares up 80p to 385p.

The finance division could probably have been floated off for about pounds 40 million and the temptation must have been strong.

The motor division advanced strongly from pounds 1.8 million to pounds 3.1 million but the performance owned much to the group’s decision to rev up its used-car sales, and parts and servicing.

The actual profits from new car sales dripped as hard-passed manufacturers throttled back on bonuses being offered to distributors such as Cowie. The profit margins, in particular on volume makes such as Ford, are now described as wafer-thin.

Mr Cowie is toying with a number of medium-size acquisitions – which could cost up to pounds 25 million – but it coy about his intentions towards Lookers, the Manchester car distributor in which he has built up a near 15 per cent stake. A bid has to be the favourite option.

Here we have a novel situation. Holders of more than 65 per cent of the ordinary shares in London and Northern, the construction to healthcare group, have accepted an offer for their shares by another company. Demerger Two, many of them on the advice of their own directors.

For Demerger to complete its plans, and for the accepting shareholders to collect their money, holders of a further 25 per cent need to accept.

But Demerger has now closed its cash offer of 81p a share, which has won the L&N board’s recommendation – but not their acceptance – and the L&N board believes it has won. Demerger is dead, says one of its directors.

Far from it, says Mr Peter Durch of Demerger. With 65 per cent of the shares under his belt, he believes the L&N board is totally discredited.

Mr Earl has 12 days to convince holders of the 25 per cent he still needs that the four shares they will eventually receive under his plan, which is to split the group into four separate entities and then refloat them, will be worth more than each existing L&N share. Or that they should sell in the market. For the real battle has now switched to the stock market’s trading floor. Yesterday there were signs that both sides were in the market, and the shares reached 72p, its highest for a week.

The L&N directors, currently sitting on about 3 1/2 per cent, do not need to dip too deep into their pockets to block Demerger, particularly since up to 5 per cent of most companies’ shares are never voted, one way or the other. But even if the bid fails, their position looks untanable. Or it ought to be.

Mr Earl would be left with two options. To walk way or to form a new company to launch another bid which would require only 50. 1 per cent acceptances.

It should not go that far. Remaining holders of L&N shares face three options. They can sit tight, and back the present board, they can sell in the market, or accept Demerger paper.

What they should not do is to do nothing. With the final divided in doubt, L&N’s share price is probably worth no more than 50p. If they are still unconvinced by Mr Earl’s proposals they should take what they can get in the market.

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