City cool over RHM break-up ploy to foil Hanson

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The Independent Online
RANKS HOVIS McDougall's plans to pre-empt Hanson's pounds 781m bid by breaking itself into three parts left the City unimpressed yesterday, with its shares gaining only 5p to 246p in a firm market.

Analysts commented on the irony of RHM planning to break itself up - something that Hanson was expected to do if it won control - while Hanson spoke of forming an international food group, something that RHM claims to be already.

Lord Hanson underlined the contrast when he said: 'I am disappointed that the management of RHM has rejected our proposals to develop a significant international food group backed by Hanson's financial strength.'

Martin Taylor, a Hanson director, said: 'We want to make a food business. It is after all a basic industry. We have no plans to sell off parts of the group.'

RHM's plans to split into three companies - bread, groceries and cakes - were accompanied by news of the pounds 24m purchase of Federal Bakeries from Dalgety. These plants are modern and RHM will transfer some production from its own plants. The whole business is facing tough competition.

Stanley Metcalfe, the chairman, who is not sure he would have a job if the de- merger plan went ahead, denied there would be any job losses or plant closures as a result of the Dalgety deal which, although completed, will only now be scrutinised by the Office of Fair Trading.

Analysts said the de-merger plan - which the company has announced before Hanson has launched its offer document - failed to secure the company's independence in the face of Hanson's cash bid of 220p a share.

Mr Metcalfe said: 'Whilst it might be true to say that Lord Hanson has provided a stimulus for these proposals, I would not wish to dent his modesty by overstating that point.'

The company had also considered disposals but concluded that the capital gains tax bill would be too high. Mr Metcalfe added: 'We've been worrying about our share price for some time. People were worried about our bakery business.

'We could not get them to realise there were other businesses in there. This solution is the most sensible because it allows shareholders to hold onto the value of the business.'

Although RHM says the plans, which are still subject to tax and shareholders' approval, have been developed over three months, details have yet to be completed. RHM has yet to give the new companies names, decide on their capital structures or complete their boards. Analysts said this made valuation difficult.

Mr Metcalfe said: 'I do not know what my future with the group will be.' He said other issues had been covered first. Mr Metcalfe, 59, was paid pounds 330,000 last year.

Hanson's offer document, expected on Wednesday, will focus on RHM's record and its management of brands including Mothers Pride. Martin Taylor, a Hanson director, said yesterday: 'It was difficult to be impressed by Mothers Pride.'

He warned that breaking a group into small parts was more unattractive than it used to be given the increasing reluctance of market makers to cover small companies on the Stock Exchange.