SCOTTISH Provident has jeopardised DCC's bid for the minority shares in Flogas. The institutional shareholder has publicly rejected the industrial holding company 275p per share offer for the minority stake in the LPG distributor.
This could have major implications for DCC's ability to compulsorily acquire the minority shares in Flogas and could mean that DCC may not get the 100 per cent acceptances required to get access to the estimated £12 million in cash on Flogas's balance sheet.
Last night Scottish Provident chief fund manager, Mr John Lawrie, described the DCC bid as "opportunistic" and said "the shares are worth more than that". He added: "Mr Jim Flavin chief executive, DCC likes buying assets' cheaply for DCC, but as a Hogas shareholder, I would not be inclined to accept at this price."
Mr Lawrie added that he would be disappointed if the independent Flogas directors recommend the DCC offer. DCC has said, however, that the offer will not be increased "under any circumstances".
Mr Lawrie has been a thorn in DCC's side in the past, despite being a substantial shareholder in the industrial holding company. Three years ago he publicly opposed DCC's bid to buy the minority shareholdings in Printech.
The implications of any rejection of the offer by Scottish Provident are immense. Scottish Provident holds about one third of the remaining minority shares and its acceptance is essential if DCC is to use the Section 204 provision of the Companies Act to compulsorily acquire any small shareholdings.
In addition, company broker Davy has estimated that Flogas will have net cash of over £12 million at the end of its financial year in March. DCC will require 100 per cent acceptances if it is to take this cash on to its own balance sheet and thus reduce the £26 million cost of buying out the minorities by £12 million.
DCC went into the market yesterday morning and picked up around four million Flogas shares at 275p each, to bring its stake from 60 per cent to 77 per cent. It has offered the same price for the remaining 5.7 million shares. DCC had also offered a loan note alternative and is also offering an alternative of DCC shares up to a maximum of one third the total consideration.
Last night, the four independent directors of Flogas - Mr Joe Moran, Mr Brian Davy, Mr Eugene Quigley and Mr Dermot Moore - advised shareholders to take no action on the Flogas offer pending the outcome of a meeting of the independent directors and a subsequent recommendation.
If the deal goes ahead and DCC does acquire full control, it will be the third time in the past three years that the company has bid successfully for an Irish public company. DCC has previously acquired computer services group Printech and food distributor Wardell Roberts. The move for Flogas is part of a policy by DCC to acquire the minority shareholdings in its subsidiaries.
The 275p per share offer for the remaining Flogas shares represents 14.6 per cent premium to the last traded price of 240p. DCC had no trouble finding sellers of Flogas stock at 275p per share yesterday morning, with the offer price representing a 12.8 multiple of 1995 earnings per share.
DCC investor relations manager Mr Michael Scholefield said that the Flogas bid is a continuation of the policy of buying out minority shareholdings in subsidiary companies. Before Christmas, DCC increased its stake in its Emo Oil subsidiary from 75 per cent 89 per cent and Mr Scholefield said that DCC has put and call options on most minority shareholdings in its subsidiaries. These can be exercised over the next two to three years.
While DCC chief executive Jim Flavin said as recently as last November that he was content with a 60 per cent stake in Flogas, the decision by DCC to bid for the minority shareholdings comes as no major surprise. Last year, DCC tightened its control on the management of Flogas after the retirement of former chief executive Mr Eugene Quigley.
At that time, Mr Flavin moved from a non executive to an executive chairman's position at Flogas and also set up a chief executive's office which included Mr Flavin, DCC director Mr Kevin Murray and Flogas finance director Mr Colman O'Keeffe.
In the year to March 1995, Flogas had profits of £6.2 million on sales of £56.8 million. The company's, broker, Davy, is forecasting profits of £8.1 million on sales of £48.2 million in the year ending March 31st.
