Bottom Line: Jardine takes the helm cheaply at Trafalgar

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The Independent Online
JARDINE MATHESON must be feeling very pleased with itself. For an outlay of less than pounds 170m, it has bought itself control of Trafalgar House, a former giant of British industry - albeit currently a shadow of its former self - with an annual turnover of almost pounds 4bn.

True, Jardine, through its property arm, Hongkong Land, has only 25 per cent of the shares. But it has consolidated its control of the boardroom with yesterday's appointment of Simon Keswick as chairman and David Gawler, Hongkong Land's finance director, to a similar position at Trafalgar. That makes four of the non-executives and one executive director in effect Jardine's men, which leaves it in a very powerful position to dictate the group's development.

Trafalgar's other shareholders have only themselves to blame. It was clear at least 18 months ago that Trafalgar had lost its way: borrowings were out of control; the Davy acquisition was looking increasingly ill- judged and it had to resort to an excess of creative accounting to keep its figures looking respectable. While shareholders did eventually start pressing for changes, they left it too late. By the time Hongkong Land launched its tender, Trafalgar was too weak to offer any real defence.

Trafalgar's old guard recognises that its options are limited and has given up fighting. It is targeting the Far East - coincidentally the main area of Jardine's operation - as one of its key growth areas. The hotels remain unsold, despite their dismal performance and the group's desperate need for cash. Jardine does not approve of selling assets at this point in the cycle.

Jardine's influence has proved useful, however. It was only through its support that Trafalgar could raise pounds 204m through a rights issue, without which its balance sheet would look even more horrendous. The example of Kwik Save - whose shares have outperformed the market by about 50 per cent in the six years since Jardine came on board - indicates that its presence may not do too much harm.

But it does leave other shareholders virtually powerless to influence Trafalgar's development. And it would be rash to assume that the interests of the Jardine taipans will always coincide with those of other investors.