Lyons, Unilever meeting will be no cup of tea

AN uncomfortable board meeting takes place tomorrow. Uncomfortable? Well, there will hardly be a meeting of minds as tomorrow marks the day at which the two Unilever (Ireland) nominated directors, Mr Jim Rice, its chief executive, and Mr David Lewis, its marketing director, attend their first board meeting to sanction the preliminary results of Lyons Irish Holdings.

The opposing views of Unilever, represented by Mr Rice and Mr Lewis, which wants to mop up the outstanding minority shareholders in Lyons, and the four independent Lyons directors, two executive directors (Mr Pierce Butler who is chairman and Paddy Duggan) and two non executive directors (Mr Martin Rafferty and Mr Eoin Ryan), have been well documented. In short, the independent directors are strongly opposed to the offer which they see as derisory.

Indeed, they have accused Unilever, which owns 75 per cent of Lyons, of ignoring the minority shareholders' response to the overwhelming rejection of the offer.

That response rate was an embarrassingly meagre 0.26 per cent at the end of August, the latest time Unilever chose to make an announcement on the response to the offer. As the offer is unconditional, it can technically leave the offer open indefinitely.

There now seems little prospect of the outstanding shares being compulsorily acquired unless the offer is raised.

Lyons has 1,170 minority shareholders. A number are institutions which have been vocally opposed to the 323.3p per share offer. Not difficult to see why with the share price in the region of 330p.

Also, many shareholders are long standing and with an effective price of 7p in 1974, there would be serious capital gains consequences.

Unilever would have to receive acceptances from 80 per cent of the minority shareholders by value and 75 per cent by numbers. It would, therefore, have to receive acceptances from over 870 individuals before Unilever could compulsorily acquire the outstanding shares. A tall order with little likelihood of success.

The deafening silence from the Unilever camp for over a month is unusual in a takeover. It seems to indicate that it has received very few, if any, extra acceptances. Some sources were speculating that acceptances may have gone up from 0.26 per cent to 0.265 per cent.

If that is the case, then from Unilever's point of view, it would be better off to remain silent. But such uncertainty is not in the minorities' interests.

Mr Rice has said Unilever would have no problem living with minority shareholders "if some want to hold on to their shares". Well, considerably more than "some" have rejected his offer. Nevertheless, he did concede that "it would be our preference to own 100 per cent".

If Unilever does intend to "live" with the minorities, with a public quotation for their shares, tomorrow's board meeting will place Mr Rice and Mr Lewis in a very strong position. They cannot out vote the four independent directors in numbers, but in crucial decisions can rely on the 75 per cent voting power to have their way.

However, they will have to be very careful to ensure that decisions do not penalise the minorities. Unilever, for example, could decide to cut the dividends if it thought that the funds could be better used for development.

But that scenario is unlikely as there would be a justifiable outcry by the minorities.

Unilever will also be restricted on how Lyons's cash mountain of more than £50 million is used. Another potential conflict is the use of auditors. At the moment, Unilever uses Coopers & Lybrand while Lyons uses KPMG. If Unilever fully owned Lyons it would make sense to have just one auditing firm.

It is the shareholders who appoint the auditors at an annual general meeting. Lyons's next meeting will be held next month but Unilever is unlikely to be bold enough to try to force through a change then.

The independent directors and the Unilever representatives, of course, will reach a consensus on many issues. They will, for example, want the company to grow its profits. Nevertheless, unease between the two sets of directors will continue unless Unilever mops up the minorities at a more realistic price.