Shareholders in Fitzwilton seem set to take offer

A month ago we wrote that Dr Tony O'Reilly and Mr Peter Gouldandris's 50p a share offer to buy out Fitzwilton would be snapped up by Fitzwilton's long-suffering shareholders. The events since then have done nothing to change that conclusion and, bar an uncharacteristic show of resistance from institutional shareholders, Fitzwilton is destined to be taken private at a knockdown price.

A look at the Fitzwilton share register shows large number of Bahamas-based shareholders who, it must be assumed, are favourably disposed to the offer tabled by their Bahamas neighbours, Dr O'Reilly and Mr Goulandris.

Many smaller shareholders - and there are many of them judging by the 500-plus pages of computer paper it takes to list them all - can be forgiven for accepting the paltry sum on offer from the O'Reilly-Goulandris takeover vehicle, Stoneworth. Those shareholders have suffered for so long that any amount of hard cash - even 50p a share - may be enough to take them out of their misery.

To put that misery in context, ten years ago Fitzwilton shares were trading at over three times the 50p offer from Stoneworth. This was, of course, the period when Fitzwilton embarked on a riot of acquisitions in the British motor trade and cash and carries, most of which were sold off a few years later. All that is left of that acquisionitis is the 74 per cent of road sign maker Rennicks, and even that stake seems to be assigned nil value in the Stoneworth offer, even though analysts in Dublin believe that Rennicks is a healthy and profitable company which could be worth in the order of £15 million to £20 million.

Even after its share price fell to 110p in the past week, Fitzwilton's stake in Waterford Wedgwood covers the Stoneworth offer, meaning that nil value is apparently also ascribed to the 50 per cent stake in the Wellworth supermarket joint venture with Safeway.

This joint venture may have had a sticky beginning - £9 million losses in the first year. However, if it does manage to find good sites in the Republic, admittedly a difficult job given the determination of Tesco and Dunnes to safeguard their market position, it will be in a position to capitalise on the retailing boom in the Republic. The apparent zero value on the 50 per cent stake held by Fitzwilton is difficult to comprehend.

Stoneworth has, of course, used a bit of a carrot and stick approach when it comes to addressing Fitzilton shareholders. The carrot is the cash on offer and the recommendation from the independent directors and advisers that the offer is reasonable. The stick is the blunt warning that if shareholders prevent the move to take Fitzwilton private, they face a dividend-free future.

The hefty dividend paid in recent years was the only consolation that Fitzwilton's shareholders had as they have seen the value of their shares plummet through one of the strongest bull markets that the Irish market has ever experienced. To put that share price performance in context, over the past five years Fitzwilton shares have under-performed the ISEQ Overall Index by almost 62 per cent.

There seems little doubt that the O'Reilly-Goulandris vehicle will get an overwhelming response from Fitzwilton shareholders. Most shareholders feel that they have little option.

However, will Dunnes Stores, an organisation that has always prided itself on value for money, be content to take a loss on the investment it made two years ago for a 10 per cent stake in Fitwilton? Given that Stoneworth has to get acceptances from 80 per cent in terms of the value of the outstanding shares and 75 per cent in terms of the number of shareholders, its ability to get sufficient acceptances to compulsorily acquire the remaining shares is not necessarily a foregone conclusion.

If Mr Frank Dunne and Mrs Margaret Heffernan decide that they want a realistic price for their shares, they do not need to secure the support of that many more shareholders to frustrate a compulsory purchase of the remaining shares. One ally that Dunnes might have if it decides to capitalise on its nuisance value as a 10 per cent shareholder is Scottish Provident's Mr John Lawrie, who holds just under 1 per cent.

The ScotProv fund manager has historically been a fierce critic of what he has believed as undervalued takeover bids, and the 50p a share offer for Fitzwilton certainly falls into that category. But it will need support from the likes of Bank of Ireland Asset Management, with its 10 per cent, and Ulster Bank Investment Managers, with its 3 per cent, to prevent this takeover becoming a done deal.

Dr O'Reilly and Mr Goulandris are absolutely correct when they state that it is no longer appropriate for Fitzwilton to be a public company. Nevertheless, that does not mean that the company should be taken private at such a paltry price. The bidders should be told to think again.