Mersey may buy Medway: Possible ports sale sparks row over privatisation

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The Independent Online
MERSEY DOCKS and Harbour has won the first heat in the race to take over Medway Ports, which was bought out by management from state ownership last year for pounds 37m.

Mersey, which runs the port of Liverpool, announced yesterday that it was in merger talks with Medway, which had been planning a stock market flotation next year.

It is understood that Mersey could pay more than pounds 100m for the Kent ports, although analysts said pounds 70m- pounds 80m would be more realistic.

Sources close to the company said the final figure depended on how a package was structured and whether it would include the paying-off of the management buyout debts and the preference shares.

It is thought that Medway, which made pounds 3m in 1992, is on course to turn in pre-tax profits of just short of pounds 10m this year. It made pounds 4.5m in the first half.

One observer who was closely involved with the bidding process said that Medway had achieved most of the improvement through a heavy reduction of labour costs.

The company now uses more contract labour and the permanent workforce has been halved from the levels before the management buyout.

'The problem for a buyer would be that a lot of the rationalisation has already taken place and it is hard to see what extra could be squeezed out of the operations.

'Having said that, Medway is a cash cow with good niche markets on the south coast and should benefit from the economic upturn.'

The announcement ended speculation over the future of Medway. Mersey appears to have beaten off rival bids from a consortium of Powell Duffryn and 3i, and from Forth Ports.

But sources close to Medway said that a deal with Mersey was by no means certain and that the flotation process could easily be reactivated if the two companies failed to reach agreement.

In any event the managers and employees stand to make substantial profits from either a flotation or a takeover.

The MBO, backed by Charterhouse Bank, involved 300 employees, who have each recently been granted up to pounds 35,000 worth of share options at 250p each. With a price tag of pounds 100m, these shares could be worth up to pounds 35 each.

The potential sale has ignited a furore, however. The Government made just pounds 13.2m from the privatisation, according to the Labour Party.

Joan Whalley MP, Labour's transport spokeswoman, yesterday condemned reports that the sale could net so much for management. 'If this is true, then it is disgraceful,' she said. She said she would ask the Controller and Auditor General to hold an investigation into the events surrounding the privatisation. 'The Government must now call a halt to all further port privatisations.'