Small Talk: Property firm hit by collapse of takeover talks

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The Independent Online

Erinaceous Group

The property market may not be as buoyant as it was six months ago but despite what the prophets of doom are saying, the majority of the UK market remains in pretty good shape. Which begs the question, why have at least five suitors walked away from Erinaceous Group?

The property services provider has been in takeover talks since 3i first showed interest back in April, but despite several other bidders coming out of the woodwork, including HBOS and Vincent Tchenguiz, the company confirmed on 22 August that all talks have been terminated. The rumour is that the company gave itself too high a price tag and there was too much legacy work following an acquisition spree. But given that the shares have collapsed from 350p since the beginning of the year to just above 150p by the time the talks ended, it is no wonder some investors believe there is more to this than the current credit crunch.

Not only does the company seem to have spent more time in court in the past couple of years than Pete Doherty, senior staff have been heading for the exit in their droves. Admittedly, most of the senior people leaving came on board as a result of acquisitions rather than via organic growth, but at least 10 well-known property executives left the company. While that could be totally innocent, some had substantial equity stakes in Erinaceous – so why would they all just walk away?

The company has been sued at least four times in the past two years by former employees. A race discrimination case was thrown out, but two cases remain outstanding. David Kahn, a senior manager at the subsidiary Dunlop Hayward, has a bonus dispute case due to go before the High Court in November, and Jacqueline Ironside, who sold her residential lettings business to Erinaceous, has also taken Erinaceous to court claiming wrongful dismissal and money she says she is still owed following the sale of her company.

Some investors have noted that chief executive Neil Bellis, who founded the company with his sister-in-law Lucy Cummins, chief operating officer, has tended to use a particular law firm – Juliet Bellis & Co, run by Mr Bellis's wife, which reportedly made £1.4m in fees from Erinaceous last year. In October 2006, Erinaceous also bought Shoreham Airport in Sussex. One of its main tenants is Fast Helicopters – owned by Neil Bellis and Lucy Cummins.

Erinaceous was due to deliver its full-year results to the market this Friday, but the announcement has been delayed until the 25th. The company told investors at the time of the bid termination announcement that it expects to report numbers in line with market forecasts.

Consensus forecasts for the current year are for £37.3m of pre-tax profits and 24.9p of per share earnings – putting the stock on what looks like a ridiculously cheap multiple of 4.4 times 2007 earnings. However, given the large number of senior exits, legal wranglings and question-marks over the failed bid talks, perhaps it is not surprising that punters appear to be unwilling to back the stock.

Miner rocked by copper licence cancellation

Investors in Central African Mining (CAMEC) should have been aware of the risks before they bought into it, but events of the past few days will have taken even the most hardened small-cap mining investor by surprise.

Rumours began last Wednesday that the government of the Democratic Republic of Congo was about to pull its licence in the Katanga province, and despite a denial on Thursday, by Friday morning the company confirmed that it had received a cancellation notice.

The news is grim for CAMEC on two fronts. Firstly, it calls into question all of its copper and cobalt assets in the DRC. Secondly, its bid for the Canadian operator Katanga Mining is an all-share offer, made when CAMEC shares were trading at 52p, 36 per cent above the current price. The chances are that the bid will have to be completely revised or pulled altogether, despite support from senior Katanga directors.

However, the word in the markets on Friday was that CAMEC's shares were heavily shorted well before any announcement was made, and the stock began to tank well in advance of any statement from the company.

But even without the Katanga licence, CAMEC is far from dead in the water. It has plenty of assets outside the DRC, including one of the largest fluoride deposits in South Africa, platinum in the Bushveld, coal in Mozambique and bauxite in Malawi. Even if it fails to complete its bid for Katanga, it still owns a 22 per cent stake in the business worth 15p per CAMEC share that another suitor would have to buy: and given last week's events, CAMEC will not sell cheap.

CAMEC is likely to pursue vigorous appeals should it definitely lose the Katanga licence.

Its shares are best avoided for the time being, but investors should keep a close eye on developments.

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