Unilever may have to raise offer if Lyons bid is to be successful

UNILEVER is likely to have to increase its offer to the minority shareholders of Lyons Irish Holdings from the current 323p per share to in excess of 385p per share if it is to secure the support of the Lyons board, informed sources have told The Irish Times.

Last night, the Lyons board - advised by KPMG Corporate Finance - issued a detailed rejection of the current Unilever offer and market sources believe that when the first acceptance date passes next Tuesday, Unilever will have acceptances from a negligible number of Lyons' 1,170 minority shareholders.

The Lyons board was careful not to put its own valuation on the company in its document outlining its reasons for recommending a rejection. But informed sources have indicated that the 323p offer from Unilever is seen as "derisory" and not reflecting either Lyons' trading position, its cash hoard or the surge in the Irish equity market since Unilever bid 323p for Allied Domecq's 75 per cent stake in Lyons at the end of January.

Increasing the offer to the minority shareholders from the existing 323p to 385p would increase the cash cost of buying out the minority shareholders from £24.2 million to £28.9 million. Whether Unilever would be willing to go higher remains to be seen, but the view in the Dublin market is that it will probably make a revised "knockout" bid that the Lyons board and the shareholders cannot refuse.

In a statement last night Unilever Ireland chief executive, Mr Jim Rice, rejected the Lyons' claim that the offer was too low and once again described its 323p offer to the minority shareholders as fair and reasonable". Mr Rice repeated that, while Unilever would prefer to own 100 per cent of Lyons, it would have no problem living with minority shareholders.

Significantly, however, the Unilever statement did not describe its current offer as final, and this provides scope for an increase in the eventuality of a rejection by most of the minority shareholders.

In its document sent to shareholders, the Lyons board rejected the suggestion that the deal with Allied Domecq had set a market price for the minority shareholders. The board also stated that the offer price of 323p per share was too low, as it represented a multiple of only 9.1 times earnings when Lyons' cash pile was stripped out of the calculations.

"This multiple compares unfavourably with the earnings multiples of non financial publicly quoted companies listed on the Irish Stock Exchange. The ISEQ general calendarised earnings multiple, at July 22nd 1996, was 13.7 times," the Lyons statement adds. The document emphasises that the value of the Irish market has risen by 14 per cent since Unilever bid 323p per share for" the Allied Domecq controlling stake in January.

The document details the full extent of Lyons's cash wealth, with the group having £48.6 million in cash at the beginning of March. Obtaining 100 per cent control would give Unilever full access to this cash.

Lyons chairman, Mr Pierce Butler, said this "unfettered access" to the cash "contrasts with the less flexible situation, from Unilever's point of view, in which the interests of the minority shareholders in LIH must also be taken into consideration."

Getting access to the Lyons cash would reduce the net cost of acquiring Lyons to £57 million - if it was to increase its offer to the 385p that is thought to be the Lyons board's minimum before it would recommend acceptance.

The problem facing Unilever is that, not only must it obtain acceptances from 80 per cent of the minority shareholders by value, but also 75 per cent acceptances in terms of numbers. This means that Unilever would need to get acceptances from over 870 individual Lyons shareholders, given the widely dispersed nature of the share register.

At this stage, the view in the Dublin market is that a higher bid by Unilever is inevitable.