Michael Page weathers UK slowdown as Adecco keeps bid options open

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The Independent Online

Adecco, the Swiss recruitment company, has refused to rule out a hostile bid for Michael Page, despite last week's rejection of a 400p-per-share indicative offer – sending the smaller UK group's stock price up almost 8 per cent yesterday.

After three months of talks, Michael Page management rejected the bid as "materially undervaluing the company", an argument bolstered by yesterday's half-year results showing revenue up 26 per cent and profits up 22 per cent. But Adecco is undeterred. "At the request of the UK Takeover Panel, Adecco is clarifying its position," the company said yesterday. "While it is focused on negotiating a recommended offer for Michael Page, Adecco is keeping all its options open at this stage." Shares in Michael Page closed up 25p at 342.5p.

Recruitment companies have been having a hard time in the last year's economic slowdown. With contractions in the housing market turning to redundancies, and massive headcount reductions in the financial services industry, headhunters' shares have tumbled. Despite recent rises, Michael Page is still nowhere near prices touching 595p in mid-2007, and rival Hays has seen a similar fall.

The faltering UK economy is having an impact. Michael Page's half-year figures to June this year show strong revenue growth to £500m and operating profits up to £84.9m. But in the UK, which represents a third of gross profits, operating profits were down by 0.7 per cent to £28.4m. Not only is recruitment activity slowing in banking and related sectors but companies are increasingly cautious across the board – resulting in a "conversion rate", calculated using operating profit as a proportion of gross profit, down from 31.1 per cent in 2007 to 29.7 per cent this year.

Unsurprisingly, the company remains bullish, emphasising that 67 per cent of gross profits of £292.7m are now from outside the UK and half are from non-finance disciplines. "Our organic growth strategy of diversifying by both specialist discipline and geography has enabled us to achieve record results and be more robust and resilient, with an increasingly difficult economic environment in some markets being balanced by others that remain strong," Steve Ingham, the chief executive of Michael Page, said.

The company will feel the pinch if the economy continues to decline, but so far the strategy is paying off, say analysts. "It is a late-cycle business so if unemployment levels pick up then the company will suffer further down the line," Jonathan Jackson, at Killick Capital, said. "But at the moment, the fact that it is diversified by both sector and geography means Michael Page is a lot more defensive in respect of the UK economy than it was at the last downturn."

When Michael Page first revealed Adecco's unsolicited £1.3bn approach this month, its shares soared by nearly a third to 369.75p, despite the lukewarm management response.

The revised proposal, ultimately rejected as "unattractive to shareholders" last week, was for the Swiss group to take 50.1 per cent through a new share issue at 400p per share, with a 200p payout to compensate for the dilution.

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