Proposals by Crean seem hard to understand

It seems almost incredulous that Mr Ray McLoughlin, executive chairman of James Crean, is now proposing to split his company into two - each with a separate share quotation, each with its own management. One in print and packaging, the other in food and electrical.

It is hard to keep up with, or understand, the group's strategy which keeps shifting like the sands. A brief resume, of its stated policies, tells it all.

1993: It was considering buying the outstanding 28.7 per cent minority shareholding in Inishtech, the publicly quoted print and packaging division.

1994: In a changed strategy decided not to buy the minorities.

1995: Strategy changed again - bought the minorities for £28 million with the intention of selling the whole of Inishtech.

1996: Reiterates strategy to sell Inishtech.

1997: Changed strategy - decides to keep virtually all of Inishtech.

1998 (October): Yet another change - plans to float off the remainder (it had sold off two companies) of Inishtech - print and packaging - as a separately quoted company. Despite all that toing and froing, Mr McLoughlin does not see it in those black and white terms. He could be asked how could he justify taking a 100 per cent control of Inishtech in 1995 when Crean had a controlling interest, and now plan to float off what is left of these print and packaging interests? He could argue that having a 100 per cent is different to a controlling interest.

In some ways he would be right. Inishtech, for example, had pursued a stingy dividend policy with unacceptable dividend covers of 5 to 6 times up to 1994. Moreover, pressure from Crean led to a loosening up of that dividend policy. However, Crean shareholders have suffered deeply. Here are the harsh realities. Crean could have sold its majority stake in Inishtech to Clondalkin in 1995 for about £60 million. In the meantime, Crean has sold two of Inishtech's best companies, Staples Disposables, a tissue conversion business, and Kartoncraft, and the entire Crean group is now valued at only £44.5 million by the market.

So, if the company is serious about off-loading the print and packaging division into a separately quoted group, should it not have kept Staples and Cartoncraft? Crean could argue that it wants to be more specialised and that now it will be more focused.

As it is, the print and packaging company (PPC) will be a relatively small company with sales of just £70 million and operating profits of some £10 million. In addition, with virtually all of the businesses in the UK - one in the US and four in the UK - it will be vulnerable to the vagaries of that economy.

Boxmore, for example, had disappointing results last week and the market responded by pushing the shares lower. PPC is likely to be valued at less than u £30 million (less than half what it could have received for its 71 per cent of Inishtech in 1995) which would make it a mere minnow. The core Crean group would be left with the strange combination of electrical and food. That would be a difficult one to rate. Indeed, there is bound to be pressure to sell the electrical division, though Crean does not countenance this at the moment. Earnings projections for Crean (as it now stands) are pretty meaningless. What matters is what is going to happen to each of the two separately quoted companies. By having separate management and separate structures must mean higher central costs. That is a potential worry.

Just look at the latest Crean results - the six month figures to June 30th 1998 which showed a drop in pre-tax profit from £3.3 million to £3.0 million. These showed a 41 per cent increase in central costs to £1.87 million. A large part of the increase is thought to be non-recurring but this has not been confirmed. In theory, the proposed splitting of Crean could work if it led to a clearer and more focused approach by the separate companies, though the smallness of their size would be a clear disadvantage. The companies would also need separate boards - having the same board straddling each company would be perceived as more of the same and that would be a stifling thought.

Crean has promised that, in addition to progressing the separation plan, "a number of initiatives are also being progressed with a view to enhancing the prospects and the value of shareholders of both companies".

Shareholders, and potential investors, will want to know if that is yet another aspiration, or if it will really lead to enhanced shareholder value (like the piece of magic up to 1990 with substantial profit and dividend growth), and reverse the cruel dilution that has taken place.