Timing of bid for Inishtech seems curious


IT IS ironic that it has taken acquisitive companies, interested in the paper and print group, Inishtech, to force James Crean, 71 per cent of Inishtech, into action.

In 1994/5 it took Crean 13 months of pondering about the merits of a bid for the remaining 29 per cent in Inishtech before it decided not to go ahead. Now it has merely thrown down the gauntlet, and at a higher price than the mooted price in 1994/5 when it was financially stronger.

It was suggested, but never confirmed, that the Inishtech independent directors wanted 600p per share, with a cash alternative in 1994/5. It is not unreasonable to have a 10 per cent discount for a cash alternative. This would imply a cash offer of 540p or 10p less than the present offer.

So what is going on? The timing of the Crean offer is curious, to say the least. Indeed, the cynic could well conclude that the present offer might be connected with Inishtech's more aggressive acquisition policy and the move of the three executives, associated with this policy, from Crean to Inishtech.

When Crean surprised everyone last week with the offer for the outstanding Inishtech equity, it also announced that three senior Crean executives, Brian Molloy, Peter Wynne and Philip Soden, were leaving Crean to join Inishtech as part of a "support services team".

Two things need to be said about that move. First, the decision on that move was made two weeks before last week's announcement. Second, it was only subsequent to that move that that team knew about Crean's takeover plans which lays a lie to the suggestion that they left because of the bid.

So what does all this mean? Will the departure of the trio weaken the Crean management capability?

While Brian Molloy was responsible for Crean's paper, print and packaging division (ergo Inishtech), the others straddled the two companies. Indeed, that team appears to have been far more acquisition focused than Crean itself.

The facts speak for themselves. In February 1994, Crean said it was gearing itself for acquisitions costing between £15 million and £25 million. Yet it made only one acquisition, the business of Motts Blue Coach Foods, for just £7.8 million. More importantly, that acquisition is understood to have been organised by Crean's US management team rather than the Dublin management.

The trio, on the other hand, have driven Inishtech hard on the acquisition trail. These acquisitions included Emwright, a Sussex based manufacturer of self adhesive labels, a 49.9 per cent stake in printed carton manufacturer, Kartoncraft, for £2 million, a 90.7 per cent stake in Bell & Bain, a Glasgow based printer of scientific, medical and educational journals and books, for £3 million, the increased stake in Kartoncraft, the Dublin based printed carton company, from 49.9 per cent to 94.3 per cent, and the acquisition of Meridian Printing and Elite Color, two US printing companies, for £8.3 million.

The latter acquisitions are understood to have been organised by Philip Soden who used to be part of the Crean team in the U.S.

With an absorption of Inishtech, leading to a total integration of its management with Crean, it might be too extreme a view to suggest that the bid was a direct response to the management moves.

The trio, for example, might not want to be part of that scenario. And Crean appears to have scotched this possibility by arguing that its strategy is to take full control of Inishtech with the aim of selling it on at a later stage.

Crean explains its strategy thus: "Crean concluded that a sale of its shareholding in Inishtech could be a difficult and very protracted process while Inishtech remained a separate listed company and that the position of the minorities would remain unsettled during a long and uncertain process".

Such a strategy should be questioned. Why should it be long and protracted?

If the intention to buy out the minority is motivated by the desire to sell off the entire company at a future time, it should be asked if Crean has someone lined up? If not, it could be embarking on a hazardous exercise with a potential gearing of more than 80 per cent. If it has, then it would have to be at a higher price, otherwise it would not make sense. In that scenario, the nonCrean investors in Inishtech would lose out.

This column has always argued that it is not in Inishtech's long term interest to remain under the shadow of its parent, where potential conflicts of interest could arise.

Therefore, Crean should place its Inishtech shares, or sell them to another group, or buy out the minority shares. It is now trying to do the latter but with the intention of selling them on later. Would it not be more equitable for Crean to discuss the sale of its 71 per cent stake with the interested parties, but with a condition that the minorities are paid the same?