BPB set to double payout to £700m to strengthen bid defences

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BPB looks set to announce plans to return more money to its shareholders as a key part of the plasterboard group's defence against a hostile bid, with some analysts suggesting it could boost the already planned payout to as much as £700m.

The company, which has rejected a £3.7bn bid from the the building materials group Saint-Gobain, yesterday led a media visit to its giant plasterboard plant at Vaujours just outside Paris, in a move that seemed designed to cock a snook at the French predator in its own backyard. BPB is the market leader in France.

BPB is allowed to issue new information in its defence up to the end of next week - "Day 39" of the 60-day bid timetable.

Richard Cousins, BPB's chief executive, said the document, which will be released next week, would not contain radical changes of strategy or large-scale disposals - though it did emerge that the company is close to selling its RawlPlug business to a Polish enterprise. RawlPlug, which makes wall fixings, was bought by BPB for £27m in 2001. "Do not expect any rabbits to be pulled out of a hat [for Day 39]. This is a very simple business that is very focussed," he said.

Mr Cousins did, however, emphasise the company's low gearing, with earnings covering the interest payments on its debt nine-times, even accounting for the £350m it has already pledged to return to shareholders after the bid emerged.

Asked about the contents of the Day 39 document, Mr Cousins said: "We have a very strong balance sheet. Our cashflow characteristics give us options.... It's a cash machine, this business." He added that the company's working capital requirement was "very low", at less than 10 per cent of turnover.

Darren Shaw, an analyst at Dresdner Kleinwort Wasserstein, has argued that BPB could easily afford a £700m buy-back - that is, an extra £350m - which would boost earnings per share by 15 per cent "and still leave the company financially strong".

Most analysts believe it would add between £200m and £300m to the return of cash plans already announced. David Taylor, of Teather & Greenwood, said that BPB, as a growth company, must be careful not to return so much to shareholders that it would hinder its ability to fund expansion. "The worst outcome would be a successful scorched-earth defence. But I don't believe that Richard Cousins would gear up to that extent," Mr Taylor said.

Mr Cousins said that any leveraging of BPB's balance sheet "would not put our growth plans at risk". He said the company was planning to invest about £1bn over the next four years, mostly on setting up new plants, including in China and Russia.

The BPB chief executive said he had received "excellent support" from a tour of institutional shareholders that he embarked on after rejecting Saint-Gobain's hostile 720p-a-share cash bid last month. The investors he has seen, which include Prudential, Threadneedle and Standard Life, own some 75 per cent of the company's share capital. "They [shareholders] are not saying there's no number [they would accept] but it would have to be a bloody big number and that's not what we've got," Mr Cousins said.

Saint-Gobain is expected to sweeten its offer, with analysts suggesting that it would have to go to some 780p a share to stand a good chance of success, or more than 800p for a management recommendation. Shares in BPB closed at 735.5p yesterday, down 2p.

The plant at Vaujours is the world's biggest plasterboard factory. The facility provides 40 per cent of BPB's turnover in France and supplies 25 per cent of the French market. It produces enough plasterboard every year to stretch around the world, if laid side by side.

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