Caradon nets pounds 190m from mystery buyer

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The Independent Online
Caradon, the struggling building products group at the centre of an alleged insider dealing scandal, yesterday took the unusual step of announcing the sale of most of its engineering and distribution businesses but declined to reveal the identity of the prospective buyer.

In a brief statement issued yesterday Caradon told the Stock Exchange it had agreed outline terms with an un-named buyer in a deal that will raise more than pounds 190m. Analysts believe Caradon was bounced into making a statement after details of the deal were leaked to a Sunday newspaper.

"The article prompted them into making an announcement rather than wait until they published interim results on 12 September," said Robert Griffiths at brokers Albert E Sharp.

In January the Stock Exchange said it had sent to the Department of Trade and Industry for possible further action the findings of its own inquiry into dealings in Caradon shares ahead of a profits warning a year ago.

The inquiry centered on alleged links between Financial Dynamics. a public relations firm and adviser to Caradon, and merchant bank Robert Fleming. The DTI yesterday declined to comment on the affair.

Mystery surrounds the identity of the would-be buyer of Caradon's engineering and distribution businesses. However, two venture capital groups, believed to be Morgan Grenfell and NatWest, were told they would not be the preferred bidders, leaving the way clear for a third venture capital group to organise a management buy-in of Caradon's 15 businesses.

In the year to 31 December 1995 the businesses earmarked for disposal made profits of pounds 21m on sales of pounds 264m.

"These are businesses with good prospects, but not a mainstream activity for us," said Caradon chief executive Peter Jansen. "Disposing of them would bring added focus and opportunities to our building products activities in Europe."

The main businesses that are going include construction tools supplier Caradon Parker, engine repairer H+S Aviation and Caradon Rolinx, the Manchester- based plastic mouldings manufacturer. In the year to December 1995, the businesses being sold made profits of pounds 21m - or about a fifth of group pre-tax income - on sales of pounds 264m.

The City was unimpressed with the proposed deal and Caradon's shares fell 3p to 224p. Analysts said Caradon's move was a reactive one that would dilute earnings.

"Caradon smells like a conglomerate," said Robert McDonald at NatWest Securities, "and conglomerates are unfashionable so Caradon is looking to sell some of its businesses."

The company has been heavily criticised for focusing on a premium price strategy for branded products such as Everest windows and MK plugs instead of cutting costs.

In the year to December 1995, Caradon's pre-tax profits fell by 43 per cent to pounds 114m in the face of weak housing markets in the US and the UK and a disappointing performance from Weru, the German door and window manufacturer.