"WE would have no problem living with minority shareholders if some want to hold on to their shares." So said Mr Jim Rice, chairman of Unilever Ireland, who last week announced his company's intention to make a bid for the publicly quoted minority 25 per cent share holding in Lyons Irish Holdings.

He may well have to. This is because Unilever is not buying the other 75 per cent of Lyons' share holding direct. Instead, the agreement is to buy Lyons Irish Enterprises which owns the 75 per cent stake.

This tactic appears to be tax driven. If the shares were purchased by Unilever, Allied Domecq which has agreed to sell the 75 per cent stake (at 325p per share), would face a capital gains liability. But by buying the company which owns the shares, this liability would be avoided.

However, that throws up another problem. To compulsorily acquire the shares from investors who do not accept, Unilever would need to get acceptances from 80 per cent of the minority 25 per cent, in value, and more importantly, 75 per cent of the number of shares held by the minorities. That will not be an easy task. Had the offer been made directly for the 75 per cent, then Unilever would have needed agreement from only another 5 per cent to allow it to compulsorily acquire the outstanding shares.

Unilever appears to be rather blase about living with minorities. Coats Viyella expounded the same views about its minority holding in Youghal Carpet, yet a number of years after living with the minorities, it made great efforts to mop them up.

"It would be our preference to own 100 per cent", Mr Rice conceded. Indeed it would. Minority interests are more than just a nuisance. These shareholders have the same legal rights as the majority holders. They have to be invited to annual general meetings, as indeed they should be. The corollary is that the majority shareholder cannot do anything that would oppress the rights of the minority shareholders.

If Unilever owned 100 per cent of Lyons it could use Lyons's cash hoard of more than £47 million (at August 1995) any way it wanted. With minorities on board, Lyons would have to be operated on an arms length basis.

Of course, no offer has yet been made to the minorities. And this offer will be conditional on the Minister for Enterprise and Employment allowing the deal to go ahead. This might appear to be in the bag as it could be argued that Lyons's 56 per cent share of the Irish tea market will only be marginally increased with Unilever's 5 per cent with its Lipton brand. However, Mr Bruton has already referred the proposed acquisition of Jet's 257 petrol service stations by Statoil to the Competition Authority "with the consumer very much in mind". He was, of course, referring to the price of petrol. And with whopping pre tax profit margins of 22.7 per cent being generated by Lyons, he might also be concerned about the price of tea. Indeed, the EU tends to be very much opposed to acquisitions which enhance an already dominant position, ergo, Lyons tea plus Lipton. So a clearance of the deal cannot be considered to be a foregone conclusion.

If it is cleared, the independent directors of Lyons (Allied Domecq's nominees would be excluded), and their advisers, would have to judge the merits of an offer. So what will they look for?

If they want to reject it, and some institutions are said to be dissatisfied with the suggested price, they could point to the last share which at 330p is 5p higher and is well below the high of 420p. However, the market guide price of 315p/330p, appears to be taking a fairly neutral stance.

But how does the proposed takeover price stand up? The last accounts from Lyons shows a marginal decline in annualised pretax profit for the 76 weeks to August 19th 1995. This was due to a slight fall in interest receipts, because of lower interest rates while core profits were up by just a whisker. The proposed consideration is on a 13.6 times historic earnings which falls to 10.4 without the cash. This appears to be about right but Unilever is not over paying. Lyons, however, now appears to be finding it difficult to grow its core businesses while lower interest rates are giving it a lower return on its cash investment.

It looks like a very good proposition for Unilever which has not been able to snatch a material share of the Irish tea market. While it would be paying £97.5 million for Lyons's 56 per cent market share, the net cost would be much lower. The cash hoard must now be around £50 million and if this is excluded, the net cost comes to £47.5 million which is an attractive price to gain a dominant share of the Irish tea market. Even with a static tea market it should get its investment back in about eight years.

The offer for the minority interests will take many months to emerge. What Unilever has to pay for the minority shareholders will depend on Lyons' share price then.