Greenalls pays high price to expand

The Investment Column

Greenalls paid a high price to win the agreement of the Boddington board, dealers and analysts alike agreed yesterday. The terms represent a 45 per cent uplift on the Boddington share price.

Greenalls' shares dipped 6 per cent on the overnight price as the City immediately cast doubt on how easy it would be for Greenalls to achieve its target of sweating pounds 18m out of the assets in the next 12 months and each year thereafter, and making the acquisition neutral in year one and earnings enhancing after that.

But the City said the same thing four years ago when Greenalls swallowed Devenish and promised to make savings of pounds 3.5m in the first year.

They succeeded then, and they now have the advantage that they know their near neighbour's business intimately.

Bid costs amount to around pounds 16m which is relatively cheap these days, although reorganisation will cost another pounds 23m, of which roughly half will be redundancy money. But Greenalls' argument that the merger was necessary to keep pace with the negotiating power of the big brewers has a real ring of truth.

Ever since the MMC partially broke up the vast estates of tied houses, falling consumption has ensured an oversupply of beer and given the pub chains a competitive advantage.

Greenalls' buying contracts run to the end of 1998, Boddington's deal with Whitbread runs for another five years. But the big five brewers already have 85 per cent of the market and further rationalisation of beer supplies is quite likely.

Greenalls is already the giant of the independent pubco sector, but even with Boddington's high quality estate of 450 pubs it will have only 3,250 pubs, roughly equal to any one of the top four integrated brewers.

Likewise Greenalls is already the third largest independent UK drinks wholesaler, and Boddington is number one, but even together they will have a mere 15 per cent.

Greenalls will have to find pounds 100m in cash as well as absorbing pounds 124m of Boddington debt, which will take group gearing from just over 50 per cent to 75 per cent, but Boddington's healthcare division has a book value of almost pounds 80m, which could be sold off.

On balance this is an excellent deal for Boddington shareholders, and a shrewd one for Greenalls'.

Companies turn to Ofex facility

In just a matter of days Ofex, the matched business facility run by broker J P Jenkins, has established itself as a serious alternative for unquoted companies and those looking to trade in them.

After the termination in late September of the 4.2 market, the Stock Exchange had expected most of the small companies to move over to its latest creation, the Alternative Investment Market (AIM). In fact, many got diverted onto Ofex as a more suitable mechanism for their needs. It now has 53 companies on it, including substantial names like National Car Parking, Weetabix and Shepherd Neame, the brewer, with another 10 in the application process.

While AIM markets itself as a capital-raising forum for small companies, Ofex sees itself more as providing visibility for established, often family, businesses, and the ability for shareholders to trade occasionally. It is also attracting Business Enterprise Scheme companies whose shareholders are coming to the end of their five-year lock-in period and need an exit mechanism.

Ofex sees itself as providing a first rung-of-the-ladder facility for companies ultimately moving to AIM or a full listing. For investors it carries in italics the full health warning appropriate for any unregulated market, where the potential for high rewards is matched by the reality of high risk. But J P Jenkins, a reputed market maker in small companies, stressed it is only working with Securities and Futures Authority-registered firms, and that all companies coming to Ofex have a due diligence screening by an independent panel. Without the need for a company to have a sponsoring broker and adviser it can be cheaper than AIM, charging only pounds 2,000 a year for its service.

The main attraction for investors are the tax breaks. All unlisted shares can be registered at half their value for inheritance tax purposes, as long as they are held for two years.

COMPANY RESULTS

Turnover pounds P/Tax pounds EPS Dividend

BMSS (I) 9.3m (9.4m) 0.40m (0.29m) 3.3p (2.4p) 2p (2p)

Chepstow Racecourse (I) 0.71m (0.82m) 0.02m (0.10m) 3.4p (19.4p) nil (nil)

Horace Clarkson (I) 20.1m (19.6m) 2m (1.3m) 5.6p (2.5p) 1.25p (0.75p)

Derwent Valley (I) 6.33m (5.40m) 1.55m (3.77m) 4.42p (6.46p) 1.73p (1.58p)

Eurotunnel (I) 105m (2.78m) -465m (-387m) -52.3p (-53.2p) nil (nil)

Jove Inv Trust (I) - (-) 0.61m (0.5m) 3.44p (2.79p) 3.1p (3p)

Martin Intnl (I) 33.8m (35.2m) -1.34m (0.27m) 4.2p (0.8p) 0.45p (0.45p)

RAP Group (I) 12.3m (11.0m) 1.13m (0.84m) 7.2p (6.2p) 1.65p (nil)

Superscape (F) 1.59m (0.86m) -1.75m (-0.24m) -32.8p (-6.1p) nil (nil)

Waterman Prtnrship (F) 10.5m (8.22m) 0.33m (0.2m) 1.3p (0.3p) 1p (1p)

(Q) - Quarterly (F) - Final (I) - Interim