Rivals jockey for control of Adare group

It should not have happened. But when the split emerged, the differences should have been ironed out - that would have provided one clear focus for the company. Instead, there are two rival camps jockeying to take over Adare Printing Group and take it private.

Rather than pulling together, they are fighting for control, indicating a wide difference of opinion over the future direction of the group. With that internal diversity it is just as well it is leaving the publicly quoted arena.

Both camps appear to have different driving forces - one is purely management driven, the other appears to be venture capital driven. Behind them are the unnamed venture capitalists who have most to gain, or lose. And they, and not the management, will be pulling the strings if either MBO succeeds.

On one side, backing the 85 to 100 management team, headed by finance director, Mr Peter Lynch, is understood to be Mercury Private Equity, a subsidiary of the US Merrill Lynch group which has been involved in a wide variety of European investments. That is a typical MBO.

On the other side, backed by chief executive, Mr Nelson Loane, who has limited management backing, is understood to be Allen McGuire & Partners, an IFSC company which manages US funds and is backed by US pension funds. This could be a great opportunity for Allen McGuire. It purchased the printing activities of the Aspen Group in Britain for £10.5 million sterling in 1998.

The businesses bought included Pensord Press in Gwent, Heanor Gate Printing in Derbyshire, Aspen pre-print in Gloucestershire and ACT Print Management in Wolverhampton. It also bought CCA, a greeting cards company. It could back these into a revamped Adare and show a sizeable profit for its US clients. If, for example, it bought the companies at p/e of 5 and backs them in at say 8, there would be a nice book profit.

A committee of the Adare non-executive directors - Mr Denis Bergin and Mr James Osborne - is understood to be considering suggested deals by both parties. While the shareholders' only concern will be price, the committee will have two priorities: price and the probability that the deal will go through following the due diligence process.

Some informed sources have suggested that the Loane consortium proposal - it was mounted after the Lynch package - is marginally higher but that could change as the two rivals jockey for the support of the non-executive directors.

The whole process has the potential to be a very messy affair. Mr Loane, for example, already owns up to 10 per cent of the equity. So, if he decides to resist the Lynch overtures, and in the unlikely event of his offer receiving no outside support, it would be very difficult for the Lynch consortium to succeed.

Normally around 5 per cent do not vote. In that scenario, the Lynch consortium would have great difficulty in getting the necessary 80 per cent to compulsorily acquire the outstanding shares. But if the Lynch consortium gained a clear majority, that MBO team would have a mandate to requisition the removal of Mr Loane and his supporters.

There are also potential difficulties for the Loane consortium. What, for example, happens when due diligence is being executed? Under this process, the senior managers - the bulk of them support Mr Lynch - would be asked their views about future projections. But would these be with, or without, their participation in the event of a Loane win?

Bids are not expected to be made until after the latest results, to April 30th 2000, are released this week or next. Last November it was looking for a stronger first half following a 3.6 per cent fall in pre-tax profit to £8.5 million (€10.8 million). ABN-AMRO, the stockbroking firm, has projected an earnings per share of 103.6 cents, a virtual standstill on the 103.1 cents earned in the previous year.

Virtually all of the groups earnings are generated in the UK, so it will not be surprising if the figures look better than expected - sterling has been very strong in the trading period so a conversion to pounds could flatter the profits by about 10 per cent. Taking out that factor could make the profits look very flat. Indeed, the projections for this year, are also unlikely to excite.

So the group's immediate prospects are not good. What, then, about a fair exit price? It was the low share price, and the move against small cap companies, which prompted the initial approach by Mr Lynch. That move succeeded in pushing the price up from €6.73 to a high of €9.1 before falling back to €8.60 on Friday. The markets have suggested a bid price of about €9. That would put it on a prospective p/e of 7.8, assuming an e.p.s. of 115 cents which would rise to 8.7 if the currency benefits were excluded. These look very low when compared with the 11 to 12 in the Clondalkin MBO.

However, Clondalkin has a number of geographical centres, while Adare is stuck in the British market which is suffering from reducing profit margins. A differential is justified but the non-executive committee would be justified in pushing for a price north of €9, particularly as there are rival bids.