Business Outlook: Swiss muscle in on Hercules' bid

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The Independent Online
The year's dullest takeover battle has sprung spectacularly to life. Until yesterday morning the most interesting thing about Hercules' bid for Allied Colloids was the improbable name of the former and the fact that the latter rhymes with haemorrhoids, which is faintly appropriate for a company that makes its living by separating solids from liquids. In the space of eight hours the boys from Wilmington, Delaware, with a little help from the Swiss chemicals group Ciba, managed to change all that.

The US suitor began the day with a bid of 155p on the table. By the end of play it had been forced to increase its final offer twice to 195p after the Swiss had stepped in and bought a 4.7 per cent stake. With Ciba now indicating it is prepared to top even 195p, Hercules will almost certainly find itself having to up the ante for a third time today.

What kind of "speciality chemicals" does Allied specialise in exactly and is everyone in this three-cornered contest on them? A business that was bumbling along with a share price struggling to stay above pounds 1 a few months ago is suddenly about to be bought for more than twice that. Supposing the price inches up to pounds 1.5bn, that represents nearly four times sales and an exit multiple in the mid-20s.

Since 175p was deemed to be a toppy price, it is hard to see how Allied is worth this much. But there is a history to Hercules' and Allied. The Americans lost out to Allied in the bidding for another US speciality chemicals business, CPS, a year ago. This time they are not to be outmanoeuvred.

All of which is good news for those with shares in Allied and the half dozen or so similar UK speciality chemicals companies. The twin drivers of globalisation and specialisation make it highly likely that more such businesses will be swallowed up as the industry's big players look for new products to pipe through their distribution chains.

Whether it is quite such good news for jobs in Bradford is doubtful. Whoever wins the day will have their work cut out making this acquisition earnings enhancing. It might just about be possible to accomplish the trick, but not without taking the axe to costs with the same gusto that they are piling on the price.