Grafton, the Woodies DIY group, has announced a recommended bid for British Dredging, a publicly quoted builders merchants, in which it already has a 29.9 per cent stake. Talks have been taking place since February and they intensified a week ago, resulting in a postponement of British Dredging's annual general meeting.
The offer, 193.6p cash sterling, for every British Dredging share, values the British company at £35.3 million sterling (£42 million). There is also a partial share and/or loan stock offer. The offer compares with the average cost of 145p per share Grafton paid for its 29.9 per cent stake. The offer for the outstanding equity will cost Grafton £25.1 million sterling (£30 million).
The bid price includes value for the 3.6p proposed final dividend which was suspended. The bid is being recommended by the British Dredging board, which has less than 1 per cent of the shares. However, Grafton has also received support from institutional shareholders, representing 18.4 per cent of the equity.
Grafton is now likely to successfully complete the acquisition. If it receives acceptances in respect of 90 per cent or more, it intends to compulsorily acquire the remaining shares. Grafton's executive chairman, Mr Michael Chadwick, said the acquisition is an important step in the group's strategy of continuing to build a strong British business to complement its strong position in Ireland. It has 41 locations in the UK and British Dredging will add 26 more, mainly in the Midland. As Grafton absorbs British Dredging there is likely to be an earnings dilution this year. However, there should be a positive contribution next year.
British Dredging has a number of hidden strengths. It has surplus property assets with a net book value of £3.1 million which it decided to sell. It had already agreed to sell one property for £3.5 million, compared with a book value of just £0.8 million, subject to approval from its shareholders. However, Grafton intends to vote against this sale "in view of the significance of the asset to British Dredging" and "has concluded that it would prefer that any sale be deferred, pending a further assessment of the alternative realisation options".
British Dredging has net cash in its balance sheet and last year increased its pre-tax profit from £2.1 million to £2.9 million. Under the partial share alternative, British Dredging shareholders can elect to receive up to 50 per cent of the cash consideration in new Grafton shares on the basis of four new Grafton shares for every 33 British Dredging shares. Those who elect for their full entitlement of new Grafton shares and not elect for the loan note alternative will receive four new Grafton shares and £63.89 cash for every 66 British Dredging shares. The maximum number of new Grafton shares that can be issued will be 786,784, representing 4.9 per cent of Grafton's existing equity.
