Hanson makes 781m pounds bid for RHM

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HANSON reverted to its role of hostile bidder yesterday with a pounds 781m cash offer for Ranks Hovis McDougall, maker of Mr Kipling cakes, Bisto gravy and Mothers Pride bread.

It was the largest stock market bid since Midland Bank fell to Hongkong and Shanghai Banking Corporation earlier this year, and, if successful, would be Hanson's first hostile takeover in Britain since it acquired Imperial Group, the tobacco and food company, for pounds 2.5bn in 1986.

Since last year's furore over its 2.8 per cent stake in ICI, the chemicals giant, Hanson has indicated a preference for agreed deals. However RHM swiftly rejected the offer of 220p a share, claiming that the bid had no commercial logic and seriously undervalued the company. It told shareholders to take no action.

In a letter yesterday morning to Stanley Metcalfe, chairman of RHM, Lord Hanson said: 'RHM seems to have lost its way forward since the time of the bid (from Goodman Fielder Wattie) in 1988 when you turned down 465p a share and such a bright picture was painted.

'It's apparent that the bread wars have debilitated RHM's performance and we are sure we can be helpful in restoring your previous fine reputation for profitability and growth.'

The stock market interpreted Hanson's offer as a sighting shot and RHM shares closed 66p higher at 241p. Michael Landymore, an analyst with the the stockbroker Henderson Crosthwaite, said the bid price was equivalent to 12.5 times RHM's current year earnings, below the stock market average.

RHM has one of the strongest collections of grocery and bakery brands of any UK food manufacturer. Golden Shred marmalade, Granary malted flour, Hovis brown bread, Paxo stuffing, Saxa salt and Sharwoods ethnic food range are all top brands in their areas.

RHM's brands were independently valued at pounds 608m in the company's 1991 balance sheet but Mr Metcalfe said yesterday that these values were not intended to reflect the open-market value of the branded businesses.

Hanson has made a speciality of selling brand names in previous takeovers. When it took over Imperial, it disposed of Courage beer, Golden Wonder crisps and Ross Young's frozen foods, leaving it with the lucrative tobacco side, for which it in effect paid nothing.

RHM's profits from branded grocery products have generally held up well during the recession, but it has suffered badly from overcapacity and price competition in milling and baking, which employ 45 per cent of the group's workforce of 30,000.

Analysts expect RHM's pre-tax profits to have fallen sharply from pounds 150m to around pounds 95m in the year to 31 August, almost entirely due to a severe slump in the contribution from milling and baking. Most expect profits to fall again in the current financial year for the same reason.

The company has about 30 per cent of the standard wrapped sliced-bread market, behind Associated British Foods which has 35 per cent.

Despite substantial closures - RHM has reduced its bakeries from 64 to fewer than 20 in the past 10 years - overcapacity and static or declining bread consumption have weakened prices.

Mr Metcalfe described bread yesterday as: 'a marvellous business - and we are very good at it. We have cut back a lot and other people will cut again at some point.'

Analysts remain divided on what Hanson plans to do with RHM. Carl Short, food manufacturing analyst with Nomura, was not convinced that Hanson, if successful, would retain RHM's milling and baking interests. Potential buyers could include the Irish Greencore or GFW, RHM's former sparring partner, which is now the largest baker in the Netherlands.

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