Lucas bid battle looms as BBA steps in
Thursday 06 June 1996
BBA is expected to swoop with a hostile bid for Lucas within the next few days, though other companies, including Germany's Mannesmann, may also enter the fray.
News of BBA's interest casts a long shadow over the agreed pounds 3.2bn merger Lucas announced only five days ago with Varity of the US. This would create the world's second largest brakes manufacturer.
BBA, which at pounds 1.2bn is only half the size of Lucas and about the same in market capitalisation terms as Varity, is expected to fund the deal with a paper offer, though a partial cash alternative is also likely to be made.
Lucas was scathing about BBA's ability to fund such a deal. A spokesman said: "There is no meaningful industrial case for a combination of BBA and Lucas. Furthermore, to make a credible offer for Lucas, BBA would be financially stretched to the limit with no ability to develop its businesses." Lucas advised shareholders to take no action until further notice.
The increased likelihood of a bid battle pushed shares in Lucas 8p higher to 254p, but fears of a huge rights issue sent BBA 21.5p lower to 295.5p.
Sources in the City said BBA would have to pay a hefty premium to win Lucas. They said many of the 15 or so institutional investors who control more than 60 per cent of Lucas side with its view that the Varity deal would create a financially sound grouping that had a strong position in the competitive global auto industry
But assuming a rival deal can be financed, BBA's cause may not be a lost one. One analyst said: "[Investors'] hearts will want them to go one way [with Varity] but they may well think in their heads that a premium- priced offer is better for their funds' performance."
Analysts also speculated that if BBA launched a bid it would be forced to sell the aerospace and diesel divisions of Lucas for around pounds 600m to make the deal more affordable. However, BBA is understood to have no such plans at the moment.
Analysts also doubted that the industrial logic of the Lucas merger with Varity could be bettered by BBA. Lucas and Varity are strongly focused on the automotive sector, especially brakes and diesel systems, though BBA's main trump card is its friction unit, which is the market leader in Europe for car and truck brake pads.
This division had sales of around pounds 300m a year and could strengthen Lucas by providing it with an integrated source of friction material for its brake systems, they said.
Lucas Varity will employ more than 56,000 and have combined sales of pounds 4.4bn. The merger creates one of the world's top 10 automotive suppliers, producing brakes, diesel engines and fuel systems, vehicle electronics and avionics.
Under the terms of the deal Lucas shareholders will receive 62 per cent of the enlarged capital, and Varity shareholders 38 per cent. The deal is not expected to be completed by September, leaving a small window of opportunity for a rival.
Linde was another German engineering group mentioned yesterday as a possible suitor for Lucas, though Munich-based electronics giant Siemens ruled itself out of the running.
BBA is no stranger to hostile bids. Last year it took control of Swiss fibre and paper group Holvis from under the nose of International Paper of the US.
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