Chubb price tag hits Williams shares

Williams shrugged off criticism yesterday that it was overpaying for Chubb as the market gave its agreed pounds 1.23bn takeover bid an initial thumbs- down by marking its shares sharply lower. Five years ago Williams narrowly failed to buy Racal, which then owned the locks and alarms group, for little more than half its latest cash and shares offer.

Roger Carr, chief executive, pledged pounds 40m of integration benefits by the end of next year and said achieving that level of profit enhancement would sharply reduce the apparently demanding multiple of earnings its recommended bid implied. Analysts thought that was a conservative estimate of the benefits of merging the two businesses.

While welcoming the commercial logic of the deal, however, a 10 per cent fall in Williams' after the deal was confirmed underscored worries about the price being paid. With no underwriters for the share element of the combined cash and paper offer, yesterday's 35.5p tumble in the value of Williams' shares to 302.5p wiped almost pounds 70m from the value of the offer.

The acquisition of Chubb, which still has to clear regulatory hurdles in a number of different territories, creates the world leader in fire protection and security. It puts Chubb's mainly old-Commonwealth businesses together with Williams' Yale and Kidde brands, both strong in North America. Mr Carr said it was a perfect fit, giving an important boost to Williams' ambitions in the Far East, where Chubb had created a strong business from its Australian base.

Williams' offer, which it said represented a 37 per cent premium to Chubb's market value before rumours of the deal sent its shares soaring earlier this week, is based on two Williams shares and 704.12p in cash for every three Chubb shares. After yesterday's fall in Williams' share price yesterday, the bid valued Chubb at 435.7p a share, or pounds 1.23bn. Chubb's shares closed yesterday 5p higher at 425p.

The jump in Chubb's share price on Thursday by 79p, or 23 per cent, to 420p is being investigated by the Stock Exchange. News of the proposed bid is thought to have leaked after Williams put in place a new pounds 1bn banking facility earlier this week.

Williams also made a forecast of its 1996 profits yesterday, estimating profit before tax and exceptional items of pounds 243m from sales of pounds 1.82bn. Earnings per share are expected to be 39.1p, or 24.1p adjusted for a pounds 97m exceptional disposal profit, and a final dividend of 9.25p will be proposed.

As well as improving Williams' geographical spread, Chubb takes the group into new security and fire protection product areas. In addition to shared areas such as fire extinguishers, locks and control panels, Chubb has strong positions in electronic monitoring and manned guard services which will complement Yale and Kidde's leading positions in hotel security and hazard sensors.

Mr Carr said pounds 26m of the expected pounds 40m two-year profit-enhancement programme would come from integration benefits such as the consolidation of regional corporate administration. At least pounds 7m would come from better operational performance, where Williams is expected to have plenty of scope to increase Chubb's lower margins. A further pounds 7m is slated for profits from additional sales as the combined companies benefit from wider distribution channels. The cost of achieving those on-going benefits will be a one-off pounds 30m.

Market Report, page 24