Comment: Chubb fattened up for the kill

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The Independent Online
Even for someone as well versed in shareholder value as Sir Ernest Harrison, today's expected pounds 1.3bn bid for Chubb is something of a coup. Not satisfied with spinning off first Vodafone and then Chubb from Racal, his sprawling electronics empire, he has now given shareholders another slice of value just as the locks and safes business was running out of steam.

When Chubb emerged from Racal it was flabby and undermanaged, grist to the mill for Ernie's hatchet-wielding lieutenant David Peacock, who set about the cost-base with gusto. No surprise that the shares should double during 1993 as he unlocked the company's well-hidden potential.

Since then, however, it has been downhill all the way as a talent for swinging the axe had to be replaced by a flair for top-line growth. The electronic and physical security market is huge, worth on some estimates pounds 25bn a year, but in many developed markets it is also stagnant. In a handful of Far Eastern markets it is growing fast from scratch, but Chubb has struggled to capture those sales.

Chubb has had to work hard to shed its staid image and judging by its flagging rating it has by and large failed. Profits from locks and safes have sagged as weak European economies and the moribund Australian construction market took their toll. Even the sexier closed-circuit televisions and alarms sector have struggled to generate double-digit growth. After disappointing interim figures before Christmas analysts have been taking the red pen to forecasts.

So securing a bid at a premium of almost 50 per cent to the shares' recent low represents a real coup, even if delayed growth from recent Australian acquisitions means the price is less attractive than it might immediately appear. Adding in the pounds 750m that the rump Racal business is now worth, a total of more than pounds 2bn compares pretty favourably with the pounds 700m Williams almost got away with paying five years ago.

Managements are usually pilloried for overpaying for assets, but this case shows the dangers of being too parsimonious. If Chubb's latest suitor really is Williams once again, it is paying a heavy price for its tight fists in 1991, when it was widely thought that a final tweak to its offer would have won the day.