Investors cool on BPB move in US

BY TOM STEVENSON

Deputy City Editor

BPB, Europe's largest manufacturer of plasterboard, surprised the market yesterday with a proposed move to the US, at what analysts said was just the wrong point in the economic cycle. The planned £708m acquisition of National Gypsum, America's second-largest wall-board maker, knocked 19p off the share price to 294p.

The cool response to the deal, which would give BPB 23 per cent of the world market but at the price of gearing of 120 per cent, was exacerbated by the admission that National was involved in litigation over possible asbestosis claims. The company said the deal would only go ahead if the legal wrangle could be tidied up satisfactorily.

The approach is on the basis of $48.50 a share for the Nasdaq-quoted company and follows two previous approaches for National from its 20 per cent shareholder Delcor. The offer represents a 48 per cent premium to National's share price before the first Delcor offer last November.

Jean Pierre Cuny, BPB's chief executive since John Maxwell was sacked in 1993 after only nine months in the job, said the acquisition would give the company a leading position in the world's biggest plasterboard market - the US accounts for over 50 per cent of world sales.

Analysts criticised the deal for gearing up the balance sheet just as the US construction cycle was reaching its peak. They said the exit multiple of 13 times earnings, and a price-tag of 1.8 times turnover, was not cheap given prospects for the industry.

BPB, which admitted that the timing of the purchase was not perfect, stressed that the deal would be earnings-enhancing and said the strong cash flow of National and BPB's existing European operations would reduce borrowings relatively quickly. The deal will be partly funded by a rights issue.

National's litigation stems from its period under Chapter 11 insolvency protection following a highly leveraged buyout in 1990 at the top of the previous building cycle. As part of that protection, a separate trust was set up to deal with $700m of outstanding asbestosis claims dating from the 1970s.

The trust is now seeking more cash from National to cover claims, and BPB maintains it will only proceed with the purchase if a satisfactory solution is reached.

BPB would acquire a base in the US where it currently has no exposure. National made profits after tax in 1994 of £53m from sales of £399m. It had net assets at the year end of £230m and net cash of £51m.

The purchase would be BPB's first major corporate deal since the ruinous scramble for European market share between BPB, Lafarge of France and Knauf of Germany. That battle slashed prices, margins and profits across the industry.