Longwall lifeline for besieged pit group
Coal resurgence could save Dobson Park from US bid
Sunday 22 October 1995
Dobson Park says it has recently begun to receive orders for longwall mining equipment from RJB Mining, the group headed by entrepreneur Richard Budge, which acquired the bulk of British Coal's mines last year in an pounds 810m deal. In September, RJB disclosed half-year profits of pounds 86m, up from pounds 6.8m in the same period the previous year.
RJB may now offer a crucial boost to Dobson Park, which suffered badly as British Coal lost the funding to invest and world coal markets became increasingly competitive.
Dobson had already managed to replace many lost domestic orders with exports, but the return of British orders could be the icing on the cake for the once hard-pressed business. RJB directors were unavailable for comment yesterday, but a spokesman said it was "looking to improve production".
RJB's debt has fallen substantially, allowing it the flexibility to further invest in increasing production efficiency. Although the privatised venture has got off to a flying start, intense pressure remains for it to further improve margins and efficiency, as key contracts with the British electricity generators come up for renewal in 1998.
This Friday, Dobson Park's US assailant must say if its 110p a share offer, worth pounds 172m, is final, or whether it will increase it.
Dobson Park's shares closed up 1p at 125p after the group issued its final defence on Friday.
The City consensus is that a higher offer is in the wings. That expectation is supported by analysts following the battle, who see fair value for the group at 140p and over. Analyst Colin Fell, of Kleinwort Benson, believes a realistic offer must be pitched at between 140p and 150p, if shareholders are to be tempted to relinquish control.
Dobson Park said orders were running substantially ahead of the same time last year, while it forecast profits would reach pounds 14.8m for the year to September 1995 - an increase of 41 per cent. A 4.5p dividend reflects a rise of 20 per cent. Operating margins at key mining subsidiary, Longwall, are expected to hit 6.7 per cent by December, an improvement of 34 per cent.
John Hanson, Harnischfeger's chief executive, said: "We have set a cap to what we see as the ultimate value of the business. This document gives us no reason to alter that."
There were signs of trouble at Dobson Park's toys division and its industrial electronics controls arm, he said. The focus of the battle, however, is over the prospects for Longwall International, which supplies roof supports, conveyor belts and shearers for longwall mining.
The attractions to Harnischfeger of the deal are clear. A worldwide consolidation has seen two groups emerge as industry leaders - Dobson Park in the UK and DBT in Germany. Harnischfeger's mining equipment business depends on sales of equipment to the traditional "room and pillar" (R&M) means of extraction.
While the longwall method shears off successive faces of coal, enabling maximum extraction, R&M - a declining market, Dobson says - criss-crosses the seam, leaving pillars of coal behind to support the roof.
A combination, then, would substantially enhance Harnischfeger's attractions to equipment purchasers both in the US and internationally.
For that reason, Kleinwort's Colin Fell says, the bid is a defensive move by the Americans. "They need Longwall to protect their own business," he said.
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