Small Talk: EC shareholders slug it out in battle over company's future

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The Independent Online

An almighty row is raging at European Colour (EC), the manufacturer of pigments and colours used to make inks, paints and plastics. In the blue corner, Steven Smith, the chairman and 58 per cent shareholder, wants to de-list the group's shares to have a better chance of turning the business around away from the public glare. In the red corner, minority shareholders strongly oppose the move, arguing that Mr Smith's prime motivation is to consolidate his grip on the firm. Small Talk investigates.

Founded in 1900 and listed on the London Stock Exchange in 1956, EC dates back to an era when Britain was an industrial superpower. But its business has been in sharp decline in recent years as severe competition from China has pushed it heavily into the red. So much so that today EC is in danger of collapsing into administration.

Minority shareholders, which include Landers-Segal Color (Lansco), a US rival, the Swedish value investor Peter Gyllenhammar and Michael Armitage, EC's former chief executive, blame Mr Smith for the company's demise. And they are deeply critical of his plans to cancel the group's listing next month.

Mr Armitage told Small Talk: "Mr Smith has manufactured the whole crisis at EC as a way to de-list the company and consolidate his hold over it. His actions are not in the interest of any shareholder apart from himself." Mr Armitage's comments were backed by Donald Greenwald, the chief executive of Lansco. He said: "What Mr Smith is doing is outrageous. None of his proposals benefit any shareholder apart from him."

Mr Smith's became chairman of EC in the summer of 2003 when Shelby Corporation, a company controlled by him and registered in the Turks and Caicos Islands, took a 29 per cent stake. Shelby paid 28p per share for their holding. More recently, the offshore firm made a loan of £1.2m to EC, making it a major creditor to the company. Mr Smith says this was needed to keep the group afloat.

The EC chairman refutes the attacks on his running of the group. He argues that without him and the loan he organised from Shelby, EC would have gone bust. "I am the only person doing anything to save the company and keep people in work. Minority shareholders are just throwing mud around," Mr Smith said.

He believes the best way to revive EC, which at Friday's close of 3p is valued at just £1.3m, and save 200 jobs is for him to take the group private and then merge it with Magruder Color, a US company he also controls. He cannot complete this transaction as long as EC is listed because shareholders would block his plan. Mr Smith believes combining the two businesses will create a stronger group.

In June he tabled a 5.5p-per-share offer for EC and received support from enough shareholders to give him a 58.3 per cent stake. It is very rare for a shareholder with less than two-thirds of a company to manage to de-list it. But the UK Listing Authority, which monitors London-quoted companies to make sure they comply with listing rules, is backing Mr Smith as an alternative to the company going into receivership.

Paul Deakin, who was one of EC's non-executive directors before Mr Smith's bid this summer, is backing the chairman's plans. "Steve Smith's proposal is the only one that is going to keep EC going. He is risking his own money because he does not want to see the group go bust and for people to lose their jobs."

EC has held extensive takeover discussion with both Lansco and a Chinese firm. Both parties have so far failed to table an offer for the whole of the Stockport-based company. Unless they, or a third party, return with a serious proposal, trading in EC shares on the London Stock Exchange will be cancelled at 8am on 13 November, thereby ending its 50 years of quoted history.

Astek set for big smiles on AIM

Look out for the AIM flotation of Astek Group this week. The designer and manufacturer of dental products will list its shares on the junior market on Wednesday. It has raised £1.25m of new money and is expected to be capitalised at £3.5m. Astek, led by chief executive Alan Segal, has a portfolio of more than 200 products for the dental industry. It is targeting a worldwide market estimated to be worth £7bn and growing. The group is far from a start-up. It has a large distribution network in place with sales in more than 30 countries. Mr Segal said: "We operate in a fast-growing market and the move to AIM will enhance our business and ability to grow quickly in both the UK and internationally."

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