He is raising pounds 73m by issuing 296.3 million shares at 27p to buy FMG, a supplier of own-label brands to the Co-op and to other high street chains, including Sainsbury and Tesco. The rest of the purchase price will be financed by borrowings.
Mr Regan, son of Roger Regan, the executive appointed to turn around the struggling Spring Ram kitchens and bathrooms group, had for some time sought a big deal to launch the company into a new era. He had been negotiating with the Co-op for several months, and the much-wanted deal looked imminent when Hobson's shares were suspended on 10 February at 27p. Trading is scheduled to re-start on 27 May.
On turnover of pounds 304m, FMG's profits were stagnant at pounds 9.8m. Return on sales was about 3.2 per cent, compared with an industry average of 7 per cent. Food manufacturers face a squeeze on profits, but Mr Regan dismissed suggestions that he had overpaid for a company struggling in a difficult market.
The deal includes a three-year supply agreement with the Co-op. 'Until four years ago this company sold to no one except the Co-op,' Mr Regan said. ' pounds 35m has been invested in it in five years. There is scope for growth. We are just interested in making this company sweat.'
Sales to the Co-op accounted for 73 per cent of FMG's business last year. Sales to other retailers rose from 12 per cent to 27 per cent in the past two years. Mr Regan believes FMG's tie to the Co-op meant some customers were reluctant to deal with it. 'FMG's independence will improve its ability to win new business,' he said.
Mr Regan ran the toiletries and consumer products business, Cadismark, and reversed it into Hobson, then a shell company, in 1992. He has built a strong management team, including Peter Hallet, a former Texas Homecare executive, and Brian Kane from Bristol- Myers. FMG's general manager, Joseph Holland, and Liam Thornton, the marketing director, will join Hobson's board.
The fund-raising, underwritten by Swiss Bank Corporation, involves the placing of 98.4 million shares with institutions, and an open offer of a further 103.7 million. Hobson yesterday published results for the nine months to 31 December showing losses of pounds 1.1m ( pounds 140,000 profit) on turnover of pounds 1.8m ( pounds 9m). Market conditions are blamed, but the figures also reflect his restructuring of the company and withdrawal from personal care products and commodity trading. Hobson intends to recomend a final dividend of 0.4p.Reuse content