Buy out likely to be accepted

Three years ago when the company was at its zenith, Fitzwilton shares were trading around 165p. Last week, as investor sentiment towards the industrial holding company reached its nadir, Fitzwilton shares were down to 32p, 20 per cent of their level ten years ago. One overseas investor took fright and dumped a large chunk of shares.

That share price performance alone will probably ensure that Fitzwilton shareholders with no links to the O'Reilly/Goulandris camp will rush to accept the proposed 50p a share offer. The company may claim that its return to shareholders has been good, given its very generous dividend policy, but it would be difficult to find any of its shareholders who would agree with that defence.

Even those generous dividends will have to pay out of reserves or borrowings in the current year.

Irish institutional shareholders, with a couple of notable exceptions such as Bank of Ireland Asset Management and Ulster Bank Investment Managers, have largely shunned the shares in recent years leaving the likes of UBS Phillips & Drew and, remarkably, Dunnes Stores, to build up sizeable shareholdings. Even at the 37 per cent premium to last Friday's closing price, few investors are going to make much money out of the bid to take Fitzwilton private.

So what exactly are Tony O'Reilly, Peter Goulandris and Lew Glucksman buying with their planned offer to Fitzwilton shareholders? The industrial holding company's main asset is its 16.5 per cent stake in Waterford Wedgwood, and it makes sense for Dr O'Reilly and Mr Goulandris - who already owns 7.4 per cent of the crystal and china company - to tidy up their shareholding.

Whether it makes a lot of sense to take on board Fitzwilton's load of debt - estimated at £80 million at end-1997 - not to mention the funding commitments to the Wellworth joint venture with Safeway - is another matter.

By buying out the remainder of Fitzwilton for a net £98 million, Dr O'Reilly and Mr Goulandris will also be taking Fitzwilton's £80 million debt onto their own personal balance sheets, not to mention the share of the cost of refurbishing and expanding the Safeway stores in the Republic and Northern Ireland. The Safeway joint venture has already agreed a £80 million sterling debt package to fund this expansion.

The Fitzwilton that Tony O'Reilly plans to take private is a much changed animal from the industrial holding company that he developed in the 1980's, which bought and subsequently sold a plethora of companies ranging from cash and carries to motor dealers to freezer and road sign manufacturing.

However the major investment in the Northern Ireland supermarket group Wellworth changed the complexion of Fitzwilton entirely. By the mid-1990's the company's business comprised Wellworth, Rennicks and the minority stake in Waterford Wedgwood built up as part of the Tony O'Reilly-orchestrated rescue of the glass and china group five years ago.

One of the most bizarre episodes in Fitzwiltons' history came three years ago when Dunnes Stores bought a 10 per cent chunk of Fitzwilton for around £10 million. Being Dunnes, no explanation was ever given for the investment, but inevitably rumours surfaced of Dunnes potentially bidding for Wellworth. Nothing ever transpired on that score.

A year later Fitzwilton finally did a deal with Safeway which saw the formation of a joint venture which took over the larger Wellworth stores in the North with plans for 15-20 large Safeway superstores in the Republic over the next five years.

Not a single announcement of a Safeway store in the Republic has, however, yet been made, and there are growing doubt over the Fitzwilton/Safeway joint venture's ability to establish a presence in the competitive Irish grocery market, made even more competitive since the arrival of Tesco last year. Those doubts over the Safeway joint venture are reflected in the minimal value ascribed the joint venture in the Fitzwilton share price.