Aggression could lead to a bloody nose, warns Portals: De La Rue talks about friendly merger on verge of collapse

INFORMAL talks about a friendly merger between De La Rue, the security printer, and Portals, the paper maker, were on the verge of collapse yesterday, leaving De La Rue with a choice between launching a hostile bid or walking away from a deal.

Jeremy Marshall, De La Rue's chief executive, hoped to persuade Portals of the merits of a recommended bid, but last night both sides said talks were under severe strain. De La Rue is one of Portals' biggest customers.

Portals was incensed by weekend reports that it rents a magnificent pounds 5m estate to its chairman, Julian Sheffield, without disclosing the information in its annual report. Mr Sheffield lives in Laverstoke House, a 4,000-acre estate in Hampshire owned by Portals. He pays the upkeep of the house and a 'market rent'. Portals refused to disclose the rent.

The company felt the story could have been a plant by members of the De La Rue camp, wanting to lay the groundwork for an attack on Portals' management style. 'We are definitely talking about someone getting a bloody nose if this thing goes aggressive,' said a Portals spokesman.

De La Rue, which has a pounds 250m cash pile, is said to be preparing a statement on the bid to coincide with publication of its annual figures on 31 May. The results should show an improvement in profits from pounds 117m to pounds 130m.

Sources at De La Rue were yesterday floating the idea that it was ready to abandon a deal, although analysts felt the company had gone too far along the road and was trying to talk down Portals' share price.

Portals' advisers have been putting around the suggestion that De La Rue would have to pay up to pounds 10 a share to get an approved bid.

Any bid, which is expected to be worth more than pounds 500m, is likely to involve a mixture of cash and shares.