City fears cut in Hanson payout

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The Independent Online
THE City is bracing itself for a dividend cut of as much as 50 per cent from the Hanson conglomerate if its controversial four-way demerger goes ahead as planned later this year.

Long-suffering Hanson investors have already seen the group's shares fall 27p, 13 per cent in all, to 185p at Friday's close. This was largely on dividend fears, since the breakup was announced over a week ago.

Now, after years of share underperformance, leading brokers are starting to pencil in a payout cut of between 30 and 50 per cent, wiping pounds 200m to pounds 300m off the pounds 620m they receive from the company each year.

"Much depends on the way Hanson's pounds 3.6bn of debt is allocated to the four new groups. Their payout capacity will depend crucially on that, but certainly Hanson has been paying a lot more than it could afford for a long time," one analyst said.

The share price slide is an ironic end to Lord Hanson's 30 years of empire building, which stressed shareholder return as its ultimate test.

Before September, it plans to start spinning itself off into four new quoted firms: Chemicals, taking in plastics and paint additives makers Quantum and SCM, as well as gas supplier Suburban Propane, in the US; Embassy cigarette maker Imperial Tobacco in the UK; Energy, including Eastern Electricity and US coal miner Peabody; and a rump Hanson, taking in London Brick, Amey Roadstone, Grove Cranes and the group's 12.5 per cent stake in the National Grid.

It also plans to float off 65 per cent of Suburban Propane and all of Cavenham Forest Industries, probably in individual plots of its huge wooded acreage in the US.

So far, however, the group has failed to give investors any comfort on the dividend, saying only that it would pay a level similar to the yield on comparable quoted companies; a view restated by its vice-chairman, Christopher Collins, on Friday.

"There's nothing new. We're still beavering away on this very complex exercise. All I can do is refer you back to what we said a week ago," he commented.

Last week, Hanson tried to sweeten the pill by floating the idea of a pounds 600m special dividend in the weekend press. The City was quick to rubbish it. "It isn't possible. The market absolutely mauled that idea," one analyst said.

And with Hanson on an 8 per cent dividend yield, against the market's average 3.7 per cent, the City now fears the worst on the payout front.

Press whispers emanating from the Hanson camp of where the debt might be put - largely in the cyclical chemicals and rump businesses, rather than the cash-generative electricity, coal and tobacco interests - also seem to make little business sense, heightening fears that the demerger was rashly conceived.

Lord Hanson is due to retirenext year, and cynics believe he wishes to leave the rump as a bolthole for his son Robert, who already graces the main board.

Mr Collins, who is married to Lord Hanson's niece, seems earmarked for the rump chair after the master leaves, paving the way for Hanson Junior.

"It all smacks of being rushed out and not totally thought through," another leading analyst said.

In the absence of detail, the City has produced widely different estimates of the breakup value, from 224p at the highest to broker NatWest Market's surprise 137p on a worst-case basis.

Most, though, lie below Hanson's price before the demerger. Last week BZW put a 190p tab on the group, Robert Fleming is on 190p, while Hanson's own broker, Hoare Govett, came out initially with 175p.

All that may change, but for the moment loss of Hanson's astute central treasury functions, which have long boosted earnings, its credit rating and fears about environmental and other liabilities have hit the stock.

The City has also given little credence to immediate bid speculation for the parts - including Imperial tobacco, which is unlikely to command the premium pounds 3.5bn plus price Hanson might want.

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