Dunloe sale should trigger suitor action

The decision of Dunloe Ewart to go ahead with its proposed asset sale, and purchase up to 17 per cent of its own equity, should trigger its suitors into concrete action. If this happens, it will remove some of the uncertainties which have surrounded the company over the past few months.

The tactic of identifying the assets which are for sale should flush out any suitor interested in specific properties. Two of the developments specified are the 1.34 hectare site on Sir John Rogerson's Quay in Dublin docklands and the 0.7 hectare site at nearby Barrow Street. These are among its most interesting sites with good potential. They would slot in nicely with some of the developments owned by Mr Liam Carroll, the Zoe Developments developer, who has built up a 27 per cent stake in Dunloe Ewart through his Vantive Holdings investment company. On Friday, Dunloe Ewart reiterated that "the board has not received any indication from the Carroll shareholders of their intentions regarding the company".

Indeed, Mr Carroll's intentions are decidedly unclear. He appears to have wanted the privatisation of the company to go ahead. That appears to be the only valid explanation for his attempt (unsuccessful) in the High Court to stop the proposals by Dunloe Ewart to cancel a proposed shareholder meeting to agree privatisation of the company. Indeed, he appears to have been caught on the hop, as an application to discharge the order was made shortly afterwards by Vantive and was refused. Also he started to accumulate his holding in Dunloe Ewart without the knowledge that Jersey-based Orb Estates had made a takeover approach to Dunloe Ewart two days earlier.

If Vantive wants specific properties it will have to move quickly. With the 27 per cent stake, Mr Carroll can stop the special resolution proposing the buyback, as a 75 per cent acceptance will be needed. Also, Mr Phil Monahan with his 6.7 per cent stake could vote against this proposal. However, the proposal to sell the assets would be easier to push through as this resolution will require only a 50 per cent majority. But if Mr Carroll cannot, or does not want to do a deal on specific properties, his only alternative would be to make a bid. Orb has already made an indicative offer of 52 cents per share but this has been turned down by the Dunloe Ewart board.

Ironically, that Orb offer was better than Dunloe Ewart's privatisation offer of 51 cents. Indeed, it was a good deal better as the 51 cent was made up of 34 cents in cash and 17 cents in unsecured loan stock. While the 55 cents tender offer (this will have to be approved by Dunloe Ewart shareholders) is 34 per cent above the share price of 41 cents, the price prior to the acquisition of the shares by Mr Carroll, it is still at an 18 per cent discount on the estimated net asset value (NAV) per share of 67 cents. Mr Noel Smyth and his co-directors will not be taking up the tender offer in respect of their 25 per cent shareholding. If more than the 17 per cent is tendered for, the accepting shareholders would be scaled back on a pro-rata basis.

The tender offer, of course, would not go ahead until the proposed asset sale had taken place. The investment portfolio up for sale has a value of some £87 million. However, after borrowings, the net amount would come to some £30 million. The value of the development sites has not been disclosed. However, property sources put a gross value of some £120 million. This would come to some £40 million after borrowings are taken out.

Combined, the net amount raised could come to some £70 million which would more than pay for €36.85 million (£29 million) tender offer and leave funds available for development. That would address its immediate problems. It would also look good on paper but it would still not address its main strategic problem. Dunloe Ewart would remain a small - actually one-third smaller - cap company, still shunned by institutional investors, with its share price continuing to trade at a big discount to the NAV. And that unsatisfactory scenario would likely remain over the foreseeable future, unless a viable takeover bid emerges.