Outlook: BTR/Siebe

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The Independent Online
SIEBE AND BTR oil the wheels of manufacturing industry. It is a dull old job but someone has to do it. Over the last five years this unglamorous and largely anonymous role has won them few friends. BTR has underperformed the market by 80 per cent, despite a kitchen sink operation of truly epic proportions since Ian Strachan arrived in 1996 and decided to turn the group from unfocussed conglomerate into focussed engineer.

Siebe has fared better, performing more or less in line with the market. But since its founder and guiding light Barrie Stephens decided to hang up his boots, the stock has rather gone the same way as the rest of the bombed out engineering sector, though at a gentler pace.

Power drives, sealing systems and process controls are not the sort of products to set the pulse racing. For a change, these two very boring businesses were none the less able to set the market alight yesterday.

The respective increases in the two share prices shows which set of investors were more relieved. BTR rocketed by 40 per cent and Siebe by a more pedestrian though still respectable 13 per cent. The promised cost savings and enhanced revenue opportunities will compensate Siebe shareholders for the modest dilution they will suffer. But for BTR, the deal looks like a positive life-raft.

Despite throwing pounds 6bn worth of businesses overboard since his arrival, Mr Strachan has never managed to convince the City that BTR deserved a re-rating. Indeed things have gone from bad to worse. Last week's transatlantic briefing for analysts by BTR merely put the investment community in a worse mood than ever.

Mergers such as these always come packaged with enticing promises. While the pounds 250m of promised cost savings over three years looks like the sort of target the new management team could comfortably beat, the difficulty is always what to do for an encore.

Allen Yurko, the fast talking American who will be running the show, says there will be "significant incremental growth opportunities" to be had from leveraging off each company's customer base. But in real life, revenue growth is invariably harder to achieve than cost reduction.

This will be especially so if Siemens, ABB and Emerson, who have all been leapfrogged by the BTR Siebe manoeuvre, decide to accelerate the pace of consolidation themselves. After his valiant but doomed attempt to turn BTR around, that will probably not be Mr Strachan's problem. Since this is a takeover in all but name, it will be surprising to see Mr Strachan, or many other BTR executives still around in six months time.

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