Kvaerner in bid talks with Trafalgar House

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The Independent Online

Kvaerner, the Norwegian engineering group, is in takeover talks with Trafalgar House - in a move that may end Hongkong Land's disastrous four- year investment in the UK company.

It was unclear last night whether Kvaerner wanted to buy all or part of Trafalgar, but the Norwegian company said that it was only interested in securing an agreed deal. Kvaerner, which last year failed in its bid for the UK contractor Amec, is thought to be mainly interested in Trafalgar's struggling John Brown and Davy engineering businesses. Trafalgar also owns the loss-making Cunard shipping line.

Hongkong Land, part of the powerful Keswick family's Jardine empire, holds 26 per cent of Trafalgar but is regarded as the company's effective controller. Some estimates put Hongkong Land's total investment in Trafalgar, including buying the original stake and subscription to two rights issues, at up to pounds 900m.

Some analysts yesterday said that Kvaerner may have to pay at least 50p an ordinary share for Trafalgar, which would value the company at about pounds 530m and Hongkong Land's stake at about pounds 133m.

Including the preference shares - a large tranch of which are owned by Hongkong Land - Kvaerner may have to pay close to pounds 800m.

Trafalgar's ordinary shares closed up 9p to 48p last night., having risen steadily over the past few weeks as rumours spread that the company was in talks. Kvaerner yesterday admitted it had held talks, and the company is now likely to post a formal offer in the next few days.

The position of Hongkong Land is pivotal, but a spokesman said that it would be guided by the advice of the board of Trafalgar House on the merits of any bid.

Zafar Khan, analyst at Societe Generale Strauss Turnbull, said: "If Hongkong Land decides to take the money and run then the rest of the shareholders are likely to follow. This is almost impossible to price. Trafalgar is a loss maker and has been for many years. What will decide the price is how much Hongkong Land is willing to accept."

Trafalgar House said that a formal offer from Kvaerner was expected soon. Scandinavian companies do not have a culture of hostile bids, and Kvaerner's failed battle for Amec was very bruising.

Trafalgar has been bleeding money, and the Keswick's investment has hurt their reputation for spotting good deals. Last December, Trafalgar reported another set of gloomy results, with annual pre tax losses of pounds 321m.

Blackspots included the Davy Metals engineering company and the Cunard cruise line, which made an operating loss of pounds 170m. These units also cost another pounds 171m in restructuring charges. The company has also been hit by poor performance in its construction business, which has suffered from cut-throat competition.Nigel Rich, Trafalgar's chief executive, said at the time that he believed the company could turn the construction and engineering businesses to profit within two years.

But Hongkong Land may not now be prepared to wait that long. It was speculated that Jardine was using Trafalgar to channel funds out of Hong Kong before the transfer to Chinese rule, but the Keswicks may now need a new strategy.

Kvaerner would be particularly interested in the engineering and construction units, and has the cash to fund capital intensive projects in those markets. The company wants to diversify away from its dependency on North Sea oil- related fabrication businesses.