There are growing indications that the senior management of household products group IWP International is heading towards a management buyout. Seven directors, headed by the chairman, Mr Joe Moran, have spent €6.7 million (£5.3 million) buying almost 5 per cent of IWP shares on the open market.
The shares were bought last Friday at €1.77 (£1.39 each), and were trading yesterday at €2.05 (£1.61).
Mr Moran said that the directors had decided to buy shares on the open market because they believe the shares offer exceptional value. He said, however, that unless Irish institutions put what the management believes is an adequate valuation on the company, then the board would have to consider alternatives.
"Yes, a MBO is a possibility that we would have to consider. There are various possibilities: one is that the market recognises the real value of IWP and we stay as we are, the second is that somebody else sees value in IWP and we're taken out and the third is a management buyout," he said.
He added that if the markets keep insisting that "big is beautiful", then IWP might also consider merging its operations with one of its British competitors. He would not specify any likely merger partner, but analysts said that household products groups like McBride or Peter Black are possible partners.
Mr Moran emphasised, however, that IWP has not instigated any search for a merger partner. "Nothing at all is happening, I can assure you," he stated.
Mr Moran said: "I'd be disappointed by the prospect of being taken over after all the work I've put into the company, but if somebody comes along with an offer that reflects the real value of IWP, we would have to look at it."
The IWP management has become increasingly frustrated at the company's treatment in the market. The share price has fallen by 75 per cent since this time last year, from a high of €5.93 to a recent low of €1.40 (£1.10) before a modest recovery to the €1.77 at which the directors recently bought shares in the market and the subsequent rise to over €2.00.
Shortly before Christmas, Mr Moran spent £2.1 million buying IWP shares at £1.70 (€2.16) to take his stake to just over 4 per cent, a move aimed at emphasising his view that IWP shares were undervalued even at that level. Back then, Mr Moran said that the price did not reflect the value of the IWP business and he also questioned the low ratings accorded to second-line companies.
That effort at reassurance fell on deaf ears in the Irish investment community and since then, depressed by a profits warning at the beginning of this month, the shares fell to the €1.40 low before recovering modestly.
At yesterday's closing level of €2.05, IWP has a stock market capitalisation of €162 million (£128 million), and is trading on multiple of around 10.5 times forecast 1998-99 earnings of 19.5p. The company's management believes that this still sharply undervalues the company.
A management buyout of IWP at a likely premium to its price in the market would be a significant deal by Irish standards. Institutional shareholders, who are displaying disinterest in the shares, are unlikely to entertain a buyout offer unless it is pitched at a hefty premium to the market price - and this would probably mean a price tag in excess of £150 million.
But even large management buyouts can be financed, indicated by the ability of the Cantrell & Cochrane management to put together a £578 million buyout backed by the British investment group BC Partners.
Market sources believe that the financial contacts of Mr Moran and his colleagues and the apparent easy availability of venture capital finance would make a management buyout perfectly feasible, although IWP's existing debt of an estimated €160 million might complicate the financial engineering.
In common with most secondline stocks, IWP has suffered by the movement of Irish institutional funds from the second-line sector into European stocks, and analysts believe that even a vote of confidence by the directors costing them over £5 million may be insufficient to change the attitude of the Irish fund managers.
The profit warning at the beginning of this month was IWP's first earnings setback since Mr Moran reorganised the group a decade ago and converted into a company specialising in household products to cosmetics. The result of that profits warning was that analysts cut their 1997/98 earnings forecasts sharply to less than 20p a share.
With that profits warning was a forecast by Mr Moran that IWP that double-digit earnings growth should resume in the 1999-2000 financial year.
As well as the buying by Mr Moran, corporate affairs director Mr Richard Hayes has also spent €1.77 million (£1.4 million) on one million shares, taking his stake in IWP from 0.3 per cent to 1.6 per cent, while a non-executive director, Mr Paddy Dowling - a former deputy chief executive of AIB - has spent €0.88 million (£0.69 million) on 500,000 shares, taking his stake from 10,000 shares to 510,000 shares, or 0.6 per cent of the total.
Two executive directors, Mr Geoff Wilkinson and Mr Bernard Byrne have each bought 400,000 shares while two other executives Mr Neil Popham and Mr Louis Murray bought 250,000 shares each at the €1.77 (£1.40).
