Confusion over Crean offer for Inishtech stake


THERE is something quite strange about the proposed offer by James Crean to buy out the outstanding shares it does not own in Inishtech. First, the timing of the offer was curious.

Curious because it was made some three weeks after three executive directors - Brian Molloy, Peter Wynne and Philip Soden - had left Crean to join Inishtech. Second, consideration of the 550p per share "offer" has been postponed pending clarification on aspects of the bid.

This is quite extraordinary, particularly as Crean owns 71.2 per cent of Inishtech and one would expect a more than cordial relationship between them. A takeover of the minority should have been more harmonious and not contentious.

While both parties were trying to put a gloss on the unresolved issues, it is obvious that there are dark underground currents between them. Is this overture of parent to offspring then taking on the mantle of a hostile bid?

Indeed, a hostile bid would be cleaner and clearer. Each side would know from what parameters to operate. As it is, there is confusion and that can suit neither side.

What appears to have happened is that Crean has put the cart before the horse. It announced its intention to make an offer. That would have been reasonable enough but the company apparently did not first discuss the management implications with the Inishtech board, as is normally the case.

As the stated intention of Crean is to buy out the minority 28.8 per cent stake and, at a later stage, to sell on the whole company, it appears the independent directors wanted to know what was going to happen in the intervening period.

A takeover of the minority stake would push Crean's borrowing up to £100 million, giving it a gearing of 100 per cent. So would Crean be in a position to fund Inishtech's continued expansion in the intervening limbo period?

Crean could argue that Inishtech shareholders should only be concerned with the value of the offer of 550p per share which is a reasonable price. Fair enough, but equally if the executive directors of Inishtech are to be retained, they need to know where Inishtech goes after Crean owns 100 per cent of the company.

The apprehension of the Inishtech board may well stem from the unreported happenings since last October. According to informed industry sources, Crean told the Inishtech board in October of its decision to sell its majority stake in Inishtech and suggested that the formal management structures be put in place which would allow such a sale to take place.

These changes alerted Clondalkin Group to make its move with a suggested offer price of around 520p per share (it would have made the same offer to the minorities). It is understood that this was considered too low by Crean and Clondalkin did not proceed. However, it all started to go wrong when Crean appeared to change its policy towards Inishtech with the sudden announcement that it intended to buy out the minority with the intention of selling off the whole company later.

Such a turnabout is likely to have induced a good deal of apprehension in the Inishtech camp. If Crean has a party in mind to sell to at a higher price than the 550p, is it not short selling the minorities? If it has not, is it not embarking on a dangerous unchartered route?

It has been suggested that it could sell the whole Inishtech at less than the 550p and still show a profit on its original investment. That is correct but it would be a worse deal than accepting Clondalkin's proposals.

The figures speak for themselves. Crean bought its Inishtech stake at an effective price of 150p per share. By buying the minorities at 550p, it would have to sell the entire holding a 529p per share (and probably around 600p after expenses) to make the same profit as if it sold its majority holding to Clondalkin at 520p.

It has also been suggested that the three Inishtech executives were mounting a management buyout for the entire holding from Crean. Industry sources vigorously discount this possibility. Indeed, with a price tag of some £90 million, it would be difficult to justify such a buyout.

When Crean looked at Inishtech in 1994/5, it took it 13 months of pondering before deciding to abandon the idea. The present indecision is taking on a similar hue.

Crean, by deciding to buy the minority and selling off the whole of Inishtech at a later stage, could be taking a time consuming and uncertain route. With such high borrowings and resistance from some institutional shareholders, perhaps it is getting cold feet and is looking for a way out.

But delays are in nobody's interests. Crean should either make its normal offer (this would have to receive a formal reaction from the independent directors of Inishtech), or abandon it, for the second time.