Fitzwilton's policy of paying substantial dividends is unsustainable in the long-term and taking the company private will allow it to explore growth opportunities "unburdened by dividend obligations and irrespective of short-term earnings performance", Dr Tony O'Reilly and his brother-in-law, Mr Peter Goulandris have stated.
Dr O'Reilly's and Mr Goulandris's vehicle for the Fitzwilton bid, Stoneworth, has got the support of the Fitzwilton board for its 50p a share offer for the outstanding stock. This values Fitzwilton at £137 million. Buying out the 72.4 per cent held by the other Fitzwilton shareholders will cost Dr O'Reilly and Mr Goulandris around £98 million.
Most in the market believe that the bid to take Fitzwilton private will succeed, given the clear warning that the substantial dividends paid in the past are unlikely to continue in the future if Stoneworth does not obtain sufficient acceptances to take Fitzwilton private.
But one Dublin investment house, Dolmen, has told its clients this week that the offer is a bad one and that shareholders should hold out for more. Stoneworth would need 90 per cent acceptances to be able to compulsorily acquire shares held by any rebellious Fitzwilton shareholders, so discontented shareholders have some muscle.
"The combined O'Reilly interests make it virtually a done deal. However, a closer look at the offer shows it to be more O'Reilly than shareholder-friendly," says Dolmen in an analysis of the offer. "It is reasonable to assume that the real purpose of this offer is to gain access to the Waterford Wedgwood stake," it adds.
Fitzwilton's 16.64 per cent stake in Waterford Wedgwood is worth almost £146 million at the current market price of 123p. This compares to the £137 million valuation that the O'Reilly- Goulandris offer places on Fitzwilton in its entirety, including the half-stake in the supermarket joint venture with Safeway and the 76 per cent stake in Renicks.
If the offer is accepted, it will mean that, not only will Fitzwilton be buying 16.64 per cent of Waterford Wedgwood at a discount, but the other assets are, in effect, being taken over for free.
Fitzwiltons's £80 million debt means, however, that after paying interest and tax, there is not an awful lot left over to meet the cost of paying the sort of dividends that Fitzwilton shareholders have been accustomed to receiving in the past.
Shareholders are faced with a dilemma. Either they accept an offer that gives the O'Reilly- Goulandris group Fitzwilton's main asset at a discount or else try and hold out for a higher offer knowing that if Fitzwilton remains public, dividends will be non-existent.
