Kingspan acquisition blocked

The Competition Authority has decided to block Kingspan's proposed €87 million acquisition of Navan-based insulation business Xtratherm. Claire Shoesmith reports.

The Cavan company said yesterday it was considering an appeal of the decision. In a statement to the stock exchange yesterday, Kingspan said it was disappointed by the authority's decision - only its second outright negative ruling under current takeover rules - and believes it is not supported by the evidence produced by the two companies.

It will now study the written determination before deciding whether to appeal to the High Court. A decision is expected within the next few weeks.

The authority said it had decided to block the acquisition "on the grounds that such a transaction would substantially lessen competition in the manufacture and provision of materials in the State".

Kingspan declined to comment further, but analysts said the likely problem lay in market share and pricing. Kingspan is the leader in the insulation market in Ireland and, while this acquisition concerned a particular type of product - polystyrene-based insulation - the authority is likely to have examined it on a sectoral, rather than individual product basis, one source said.

John Sheehan, an analyst at NCB, described the ruling as a "modest setback," and said he expected the company instead to increase its internal spending to expand factories and boost production. Mr Sheehan said that, "on balance", he had expected the proposed acquisition to receive approval as the current levels of economic growth imply there is room for another player in the market.

Flor O'Donoghue at Davy agreed, saying that, while it would obviously have increased Kingspan's dominance in the Irish market, there were still enough alternative products on offer.

The shares initially dropped as low as €15.90, but recovered as the day went on to close down five cent at €16.50. "It's disappointing, but by no means a disaster," said Mr O'Donoghue. The acquisition would have added less than 5 per cent to Kingspan's sales, he said.

Moreover, the rejection won't affect Kingspan's future earnings forecasts as analysts hadn't yet factored the acquisition into their expectations. The company in September reported a 34 per cent jump in pretax profits, prompting a round of analyst upgrades after chief executive Gene Murtagh said he expected "substantial" earnings growth for the year as a whole.

The growth was drawn from all of the company's five divisions, but the highlight had been the insulation business, Mr Murtagh said.

Kingspan first announced the acquisition of Xtratherm in June, saying it would give the group access to production capacity in the UK at a time when demand for insulation products is expected to rise.