Outlook: Polypipe/IMI

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The Independent Online
AS TAKEOVERS go, IMI's agreed pounds 337m deal with Polypipe is not one to set the pulse racing. The manufacture of plastic pipes, drains and gutters is a dull old business. But, as the saying goes, someone has got to do it. And Polypipe has done it very well indeed.

With umpteen years of unbroken profits growth, Polypipe is one of the unsung steady eddies of Britain's troubled engineering sector. The deal has also netted a pounds 56m windfall for its chairman and founder, Kevin McDonald. This might seem chickenfeed in an era of multi-billion pound internet fortunes, but then this is a manufacturing company and rarely does anyone want to put much a value any such enterprises these days.

In its own way Polypipe has been quite an innovator. Mr McDonald, a combative Yorkshireman, set up his first plastics business in the 1960s when plastic tubing was only just starting to replace metal and ceramics in the building materials industry. When Polypipe came to the stock market in 1985 with a value of pounds 12m, it wasn't taken tremendously seriously.

Maybe it was the name - so similar to Polly Peck - or maybe the pin- striped suits of the Square Mile found the thick-accented Yorkshireman and his drainage pipes not quite the thing. Given that Polypipe shares have outperformed the market by 226 per cent since then, there may be some regrets on this score.

Even so, IMI's offer is hardly anything to write home about. The 200p cash price gives an exit multiple of just 12-times current year earnings forecasts. IMI's interest is in bolting on Polypipe's plastic tubes to its own copper operations and reaping the consequent distribution synergies.

Counter bids shouldn't be entirely ruled out. IMI's price is a stingy one, and Polypipe has some very attractive market positions. Unfortunately, the most likely counter bidders might face competition problems. Hepworth would almost certainly like to buy Polypipe, but with a much smaller clay pipes deal referred to the MMC before Easter, it is hard to believe it would be able to steer the acquisition of Polypipe through the competition authorities.

It is with this in mind that fund managers are looking to Continental Europe for any rival bid. There's a chance the prey might yet slip through IMI's fingers.

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