M&G backs pounds 196m bid for Newman

FKI, the acquisitive engineering group, yesterday launched its first hostile takeover by delivering a potentially knock-out bid worth pounds 196m for Newman Tonks, Europe's largest architectural hardware company.

In a highly unusual move M&G, Newman Tonks' biggest shareholder with an 11.2 per cent stake, said it had irrevocably undertaken to accept FKI's offer while Britannic Assurance, another institutional investor, also pledged its 2.2 per cent stake to FKI.

M&G normally backs incumbent management in takeover situations, but the fund manager has become disillusioned with Newman Tonks' poor track record.

"In no way could it be described as a successful company. It has demonstrably underperformed," said Nigel Morrison, a director of M&G. "We have been invested in Newman Tonks for many years and supported them through rights issues and a bid by McKechnie in the late Eighties. But their share price [prior to the bid] and the dividend are lower than 10 years ago. FKI's bid is the quickest way of realising shareholder value."

However, Mr Morrison denied M&G had changed its policy on takeovers. "This is a one-off situation," he said.

Newman Tonks, a Birmingham-based maker of door handles, locks and hinges, rejected what it called FKI's "opportunistic" bid and urged shareholders to take no action. It said the bid did not reflect the value of its brands, market position or future prospects.

FKI is offering a mixture of cash and shares worth 150p, or pounds 196m. There is a 140p cash alternative. The deal is being funded by a fully underwritten conditional rights issue of two new FKI shares for every 13 existing shares held at 175p to raise pounds 152m.

The rest of the deal will be funded from internal resources, taking FKI's gearing up from more than 60 per cent to 80 per cent. Jeff Whalley, FKI's chairman, said the combination of Newman Tonks with FKI's hardware group would create a business with an annual turnover of pounds 500m, making it the largest of FKI's four divisions with 38 per cent of sales.

FKI first approached M&G a fortnight ago. Talks between Mr Whalley and Newman Tonks' chairman, Christopher Hughes, about an agreed 134p- a-share cash offer worth pounds 172m began on Thursday at the London offices of ING Barings, the merchant bank brought in to handle the deal ahead of FKI's normal advisers, Rothschilds.

But discussions broke down on Sunday when Newman Tonks revealed it had been approached by FKI but did not disclose a bid value.

Last night shares in Newman Tonks ended 20.5p firmer at 149.5p. FKI fell 3.5p to 196.5p.

Comment, page 15

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