No Pain No Gain: Takeover bid at MacLellan points to a timely exit

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The Independent Online

Mixed fortunes for the No Pain, No Gain portfolio. In the past few weeks it has encountered a rewarding takeover bid, boardroom hostilities, Australian expansion and three run-of-the-mill trading statements.

MacLellan, a support services group, is the constituent attracting corporate interest. Last week Interserve said it was prepared to pay some £116m in cash and shares for its smaller rival. The bidder is seeking a greater exposure to the private sector where its target is at its strongest. The deal has considerable logic and the terms, roughly 116p a share, have the support of the MacLellan board. The portfolio paid 65.5p.

I am happy to accept. I had hoped for a little more but the MacLellan share price had been signalling a bid not far away from the 116p level. The offer is 80p cash with the rest in Interserve shares. There is a mix and match facility that should allow me to make an all-cash exit from one of the portfolio's longest serving constituents.

The departure will reduce membership to 14. I will, of course, seek a replacement. I am tempted to descend upon another support services group, as consolidation seems to be the name of this particular game. Unfortunately, the shares of the takeover candidates already look pricey.

Lennox, back from suspension last week, appears to be the subject of further boardroom conflict. It seems yet another clash between the warring factions is imminent. Peter Voller, whose removal as the chief executive was the first outward sign of the in-house shenanigans, is attempting to oust director Ray Greenwood, who seems to have kept the company ticking over during the turmoil. He is also seeking the appointment of four directors.

The shares made a more disastrous return than I anticipated. They traded at around 5p against the 32p suspension. The feeling that, perhaps, they were over sold lifted the price to 10p. It is now 7p. Lennox is threatening to become an even greater embarrassment than the late Profile Media. I feel I will soon be duty bound to accept my losses and sell.

Myhome International, the residential cleaning and gardening group, is the constituent setting up shop in Australia where it has established a franchise in Brisbane. This, it hopes, will provide a platform for a roll-out of a spread of up to 200 operations in Australia and New Zealand. The portfolio's only share traded on the fringe Ofex market continues to perform satisfactorily - riding at around 36p against a 15.5p buying price.

Elsewhere the company has recently used the master franchise route to expand. It pulled in £150,000 by setting up such a deal for Ireland and this week undertook a similar exercise, for another £150,000 fee, in Scotland.

Myhome recently acquired full ownership of its Nicenstripy gardening business, ending thoughts it may float the company on Ofex, retaining a controlling stake. Ofex traded Franchise Investment Strategies, which had owned 30 per cent of Nicenstripy, is, rather surprisingly, going into voluntary liquidation. It has a share stake in Myhome.

Georgica, with snooker and tenpin bowling interests, Rentokil Initial, wash room hygiene and pest control, and Stagecoach, buses and trains, represent the trio with trading updates.

On the surface Georgica's three-month return gives the impression the group has been well and truly snookered. Profits are down from £4.1m to £2.3m.

But the chairman Don Hanson points out that this time round there were no New Year or Easter trading contributions to the bottom line. "Underlying trading was strong", he says.

Rentokil's revival is taking time. But, slowly and painfully, it is making progress. Still, quarterly trading profits fell 19 per cent to £50.4m and it is set for an uninspiring year. The picture should then start to improve.

On the other hand Stagecoach is trading well and should produce a yearly profit of around £130m - in line with City expectations. A major worry, however, is the South West Trains franchise which expires next year. It contributes around one third of group profits. Although Stagecoach deserves to retain SWT there is no guarantee it will - witness the shoddy way Sea Containers' GNER franchise has been undermined.

Stagecoach has staged a remarkable comeback from the dark days of 2002 when it was seen as teetering on the brink of disaster with the shares down to around 10p. For a time they motored along the recovery road. But in the past couple of years, despite sound trading, they have been stuck in a rut, wandering between 100p and 123p. Until the SWT situation is resolved the shares are likely to remain hesitant.

cash@independent.co.uk

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