The proposed management buyout (MBO) of the remainder of the Jones Group which floated with such high ideals in the 1970s, will mark its final dismemberment as a publicly-quoted group. Is such a traumatic end necessary? And was its dismantlement which started with the sale of the shipping side in 1997 the right course of action?

The management team involved in the buyout obviously thinks Jones has a future. Why else would that team be prepared to establish a highly geared vehicle to acquire the remaining oil distribution business and Appian Fasteners, for £10.4 million (€13.2 million)? That begs the question; why not devote the same kind of energy to the reshaping of Jones which will now be demanded by the MBO?

Jones' strategy is two-pronged. First, there is the MBO. Second, there is a proposal to sell its 63 per cent stake in Blugas, to two separate companies. So is the team buying the oil distribution business and Appian Fasteners, at a knocked down price; and is the company selling off Blugas for a song?

The sale of Blugas should be easier to assess because there are no potential conflicts of interest. Under a shareholders' agreement Jones is obliged to offer its 63 per cent stake to the other shareholders - Suttons (a subsidiary of Bord na Mona) and Richmond group - in proportion to their shareholdings. So what about the price?

Jones is offering £1.65 million. The profit before tax attributed to Jones' stake amounted to £1.1 million in the year to December 31st, 1997. That is over a year ago but the LPG bottled business has been in decline for some time, so it would be reasonable to use that figure. On the basis of profits, the consideration is very handsome. But it is at a £1.5 million discount to the net assets of £3.1 million. This appears to be justified by Jones which last week explained that the debts of £1.4 million will remain in Blugas, so on a group net cash basis, the transaction will boost cash flow by £3.1 million. Nevertheless, the assets are still being sold at a substantial discount. However, the main focus for shareholders must be on the MBO. The management team (it will have 65 per cent, ICC bank will have 35 per cent) proposes to buy Jones Oil (a large Esso distributor in the Republic), Minster Fuels (a Texas distributor in the south of England), Hall Fuels (Esso distributor for the Greater London area), Hardy Craske Fuels (Total Oil distributor in Lincolnshire and East Anglia) and Appian (distributor of specialist fastener systems in Ireland). The offer is £10.4 million for the business which generated a pre-tax profit of £1.1 million in the year ended December 31st, 1997, on net assets of £6.7 million at the end of June, 1998. In contrast to the Blugas deal, this consideration represents a sizeable premium on the net assets. Also, the estimated net profit multiple is in excess of 12. That is a reasonable price.

That profit multiple is based on figures which are over a year old. It is incumbent on the offer document, out shortly - possibly on Wednesday, to give up-to-date information on the performance of the businesses which the MBO has eyed. Industry source say Jones' oil distribution generated similar profit in 1998 to those in the previous year, so the 1997 multiples are probably a pretty fair guide. There have been rumblings that the Jones' management team has concocted a cosy deal for themselves and that a number of interested parties were frozen out. However, Jones had contacted a number of potentially interested parties and these were not interested or, according to reliable sources, made much lower offers than the MBO. Also, some parties were only interested in Jones Oil - the Irish side - but the group rightly took the view that the business was not for sale in bits and pieces. Interested parties can still make a counter offer but with the proposals being put to the shareholders, in a little over three weeks time, the time scale is short. What Jones' shareholders have to remember is that their group was notching up huge losses a few years ago. It was too diversified for its management, prospects were minimal and the stock market shared this view by according it a yesterday's rating. That rightly prompted the asset sales programme including the sale of shipping and Tube rollers. It was then left with surplus cash and last year decided to pay back £18.3 million to its shareholders. Prior to that announcement the shares were traded at 190p.

So the shareholders have already got 235p cash per share for 60 per cent (some took more than 60 per cent) of their holdings. After that it was then too small to be sustained as a purposeful publicly quoted group; though the management team, without the expenses of a publicly-quoted group, and the with greater dedication demanded by a highly geared MBO, may make it work. Now with the sale of Blugas and the MBO, there could be a further payout of more than £13 million or more than 250p per share, over an 18 month period as the company is liquidated.

That must be judged a favourable financial outcome, though the demise of any publicly-quoted company casts its own sad shroud.