Graham sizes up Erith

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The Independent Online

Graham Group, the builders' merchant that was spun off from BTR last year, was yesterday forced to confirm that it was in talks to acquire its smaller rival Erith. The Takeover Panel demanded that Graham make a statement after movements in Erith's share price.

Erith shares shot up a further 12 per cent on the news to finish at 74p. Graham said it hoped for further talks but hinted that the higher share price might scupper a deal.

However, it is believed Graham would be interested in a deal at 90p per share which would value Erith at pounds 40m. Graham would fund the acquisition by a share placing.

The takeover would be Graham's first since it floated on the stock market in February 1994 and would be a neat fit. Graham has 148 branches but has little presence within the M25. Erith has 43 outlets but is strong in and around London. Graham says Erith is "too small" to compete effectively and its geographic coverage is too restricted.

While Erith is stronger in the heavy side of the industry such as bricks, timber and aggregates, Graham has more expertise in the lighter end of timber and plumbing supplies.

Graham is the UK's fourth largest builders' merchant after Wolseley, Harcros, owned by Harrisons & Crosfield, and Jewson, part of the Meyer Group. In March, Graham reported its first full-year results since flotation, with a 36 per cent increase in profits to pounds 19m. Sales were up by 12 per cent to pounds 419m.

Yesterday, the company said sales to the end of May were 12 per cent higher than last year, with profit margins improving.

Despite a sluggish housing market, the company has made good progress with electronic distribution and overnight deliveries. Unlike Erith, it has a computer in every branch.

Anticipating a weak housing market and the end of the boom-bust cycle, Graham is looking to grow by building market share so it can increase its buying muscle and enjoy better economies of scale. Graham's shares closed down 1p at 182p.

Erith slumped into loss in 1992 but in March reported profits of pounds 2.5m on sales of pounds 85m. Bryan Castledine, Erith's chairman, said the prospects for 1995 looked "tantalising". He was unavailable for comment yesterday as he is on holiday in Spain.