Grove trust cuts George Wimpey stake to 5%: Speculation mounts over cash call at building group

GROVE Charity Management, the trust established more than 30 years ago to protect George Wimpey from takeover, yesterday cut its stake in the building and construction group from 34 per cent to 5 per cent.

The placing of 84.3 million shares, raising pounds 111.7m for the trust, was welcomed by Wimpey. 'We fully understand the trust's reasons for reducing its holding in the company in order to widen its investment portfolio,' Sir John Quinton, the chairman, said. 'We are pleased that the trust will remain a large shareholder.'

The shares were placed with institutional shareholders at 132.5p a share, compared with an opening price of 146p. Wimpey's shares closed 4p lower at 142p.

The sale increased City speculation that Wimpey will ask its shareholders for cash to finance its expansion. Wimpey aims to build its minerals division, where it has added aggregates reserves in the Republic of Ireland and the Czech Republic to its existing interests in Britain and the US. It also wants to increase the number of houses sold this year by 1,000 from the 6,380 completed last year.

Steve Charnock, building analyst with Charterhouse Tilney, said Wimpey would need 'serious money' to develop its minerals business. 'The interesting question is: does Wimpey have a rights issue? The answer is yes.' But he said yesterday's placing will have satisfied institutional demand for the shares, and the purchasers are unlikely to want to welcome a rights issue in the short term.

Joe Dwyer, Wimpey's chief executive, refused to comment on the rights issue speculation. But he admitted that Grove's stake would have made a cash call 'that much more difficult' as the trust would not have taken up its shares. 'It was not a bar, but it had to be taken into consideration.'

He dismissed suggestions that the sale could make the group more vulnerable to a takeover. 'If anyone made an offer for their stake, as a charity they would have been duty- bound to consider it.' He added that the sale would make it easier for the company to make acquisitions.

The trust was set up in the 1950s by Sir Godfrey Mitchell, who bought the company in 1919 and was chairman until 1973, and makes donations to a wide range of charities and projects. It reduced its stake from 49.97 per cent to 35 per cent in 1986 - when it realised about 174p a share.

Ken Costa of SG Warburg, the trust's adviser, said Wimpey accounted for 40 per cent of its pounds 270m assets and the trust wanted to diversify its portfolio and reduce the imbalance of having such a large holding in one company in that sector.

Wimpey's shares have more than doubled from last year's low of 65p, spurred by signs of a recovery in the housing market, but they are still considerably below the 303p peak achieved in 1989. But Mr Costa said: 'This was a good time to sell. It is good for the trust, as the shares have risen from 65p to 140p in a matter of months. And we were able to get it away with very tight pricing.'

But the sale comes as the group has halved its dividend to 5.25p as pre-tax losses escalated to pounds 112.4m, which wiped pounds 5.2m from the trust's income of pounds 21m. Mr Dwyer said the cut 'would not have gone unnoticed,' although he said the trust had made no comment on the decision to cut the payment, announced last September. One of the charity's directors, Desmond Graves, is on Wimpey's board and will retain his seat despite the sale.

(Graph omitted)

View from City Road, page 32

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