Bottom Line: Plenty of logic in MB-RTZ deal

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The Independent Online
IF the market is an accurate measure of these things, the possibility of RTZ selling its building products and engineering arm to MB-Caradon is good news for the building group and a matter of indifference to the miner. MB's shares rose 16p to 303p while RTZ ended yesterday 1p higher at 687p.

Arguably, the joint announcement that the two companies are discussing a deal is good news for them both. RTZ has had an unofficial For Sale sign over Pillar for two years now and has made no secret of its desire to focus on the core business of minerals extraction.

MB-Caradon, for its part, would have some explaining to do to shareholders if it had not found a home for its cash pile by the year-end. The pounds 473m proceeds of selling its 25.3 per cent stake in CarnaudMetalbox have been getting a pretty feeble return from the bank since April.

Nothing is signed or sealed yet but there is plenty of logic in the putative deal. MB could find a home for Pillar's door and window frames business in Everest (which it also bought from RTZ). There is no reason to believe it could not make a good fist of running Pillar's jewel in the crown, the MK plug business. And the engineering bits (including part of Indal of the US) should find a reasonably willing buyer at this stage of the cycle.

If, indeed, it comes to that. Yesterday's announcement stressed that negotiations were over the sale of 'a large part' of RTZ Pillar, which complicates the business of assessing the deal but probably in MB- Caradon's favour.

Assuming MB gets to leave the loss-making American bits with RTZ, it is getting a better deal than indicated by the bare figures being suggested of pounds 750m for a division that made just pounds 20m last year.

RTZ, of course, is not just worried about price. A combination of government tax changes and two scrip dividends has slain the ACT dragon, which was part of the reason for holding on to Pillar's UK earnings. And a move into coal mining, via the Nerco and Cordero acquisitions earlier this year, has usurped Pillar's (failed) role as a counter-balance to the cyclicality of metals.

It may be hard to judge the price MB might pay for Pillar. What is almost certain, however, is that, after a period of half- hearted ownership by RTZ, there will be plenty of scope for cost-cutting. Analysts think a deal at pounds 750m would be modestly earnings-enhancing even without wielding the knife.