Green Property MBO fails to impress

So has the management buyout bubble burst after Stephen Vernon and Danny Kitchen were forced to pull the plug on their MBO plan after failing to put together a package that would get the backing of Green Property's non-executive directors.

Now it's back to the drawing board for a company that has bemoaned its treatment at the hands of the market and that has done little for its shareholders in the past few years. Green might have grown its business impressively in recent years, but all its shareholders really care about is a virtually static share price and a dividend that has produced a yield of little more than 1 per cent.

Investors in publicly-quoted property companies usually accept that they're going to get a pretty poor dividend. Property companies have huge cash demands for investment and development - activities that should theoretically push up the share price as the value of the assets rise. But if the share price stands still, then shareholders are losers on the double and the management has to think of ways of addressing the situation.

This is not a criticism of Green and its management. Stephen Vernon and Danny Kitchen have done an admirable job in building up the company from very small roots. But they are victims of an investment environment where property companies of any size are not viewed with any great regard and mid-sized ones like Green even less so.

So now Green has to look at ways of providing some value for shareholders, and buying back shares has been mooted as one way of putting some money into shareholders' hands. The problem here for Green is that it is already up to its neck in debt - a forecast €618 million at the end of the year. So buying in shares or even paying a special dividend like Abbey did a few months ago poses problems.

The company could, of course, simply adopt a more generous dividend policy and bump up the yield to shareholders. Another option would be to pay cash rebates to shareholders from realised investment gains. Green can put itself on the block and look for a trade buyer. It could also, of course, simply shut up shop, liquidate its assets and distribute the net proceeds, but there are few in the markets who believe a move of such finality is being realistically considered by Stephen Vernon.

The Green chief executive did not indicate how much his group would have been able to offer. But the non-executive directors - whose job is to look after the interests of small shareholders - would surely have in mind that Noel Smyth's offer to take Dunloe Ewart private has been pitched at 25 per cent over net asset value.

Green might be a different animal from Dunloe - different portfolios, different locations, etc - but paying a 25 per cent premium over Green's net asset value would put a price tag of €1.14 billion (£900 million) on the property group. That would test the resolve of any management group and venture capitalists involved in financing a MBO.