DCC continues buying Flogas, bringing stake to over 74%

INDUSTRIAL holding group DCC has continued to build up its share holding in Flogas through purchases in the market. DCC disclosed yesterday that on Friday it bought a further 260,210 Flogas shares at the public offer price of 275p, to increase its stake from 77.3 per cent to 78.4 per cent.

Under takeover rules, DCC can continue to increase its stake in Flogas through market purchases, but cannot pay less than the 275p per share it has offered the minority shareholders.

Market sources believe, however, that, given the uncertainty generated by Scottish Provident's public rejection of the offer, DCC may find it difficult to increase its stake much further through direct share purchases.

In a further comment on his strongly worded rejection of the DCC offer, Scottish Provident's chief fund manager, Mr John Lawrie, said "I am surprised that they did not seek a recommendation from the independent directors before making the offer."

Asked to comment on his own rejection of the offer and DCC's statement that the 275p per share offer would not be increased "under any circumstances", Mr Lawrie said.

Given the size of Scottish Provident's share holding just over 8 per cent DCC will not be able to compulsorily acquire the minority shares unless it can persuade Mr Lawrie to change his mind.

DCC has made its offer conditional on getting acceptances from 80 per cent of the minority shares in terms of value and 75 per cent of shareholders in terms of their numbers. Those conditions cannot be satisfied without the agreement of Scottish Provident.

The need to compulsorily acquire minority share holdings and get 100 per cent control of Flogas is crucial for DCC. Unless it gets 100 per control, it will not be able to use Flogas's £12 million plus cash balances to reduce the £26 million cost of buying out the minorities.

Some market sources have suggested that one way for DCC to come to an agreement with Scottish Provident might be for Flogas to pay a higher dividend for the year ending March 1996. Flogas's broker, Davy, has forecast a gross dividend of 13.3p equivalent to a yield of 4.8 per cent at the offer price of 265p.

Flogas paying a higher dividend would mean that shareholders like Scottish Provident who are unhappy with the current offer would end up with more cash if they ultimately decide to accept. Paying a higher dividend would also, of course, eat into Flogas's cash pile and thus indirectly increase the cost of the DCC offer to the minority share holders.

Such a move, however, would undoubtedly require the approval of the Flogas independent directors. It would also increase the cost of the assets being acquired by DCC Mr Lawrie has already said that DCC is fond of buying assets cheaply, a reference to the previous dispute between DCC and Scottish Provident over DCC's takeover bid for Printech.

On that occasion Mr Lawrie described DCC's offer for Printech as "pathetically derisory". On that occasion, Scottish Provident lodged a High Court challenge to the proposal by DCC's Ochil takeover vehicle to compulsorily acquire the institution's Printech shares under Section 204 of the Companies Act.

That row failed to reach the court after an agreement was reached whereby Scottish Provident, in effect, swapped its Printech shares for shares in Ochil and retained a direct share holding interest in Printech.

The Scottish Provident fund manager has been a scathing critic of some recent takeovers of Irish public companies. Apart from his very public disagreements with DCC over Printech and now Flogas, Mr Lawrie also made his lack of enthusiasm for DCC's takeover of Wardell Roberts quite plain, although he eventually accepted the offer after DCC secured enough acceptances to make its bid unconditional.