Pilkington expands UK distribution

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The Independent Online
PILKINGTON moved to take control of distribution for its UK glass business yesterday by buying Heywood Williams' processing and merchanting division for pounds 95m.

The news boosted Heywood's shares 53p to 239p, despite the group's simultaneous announcement of a dive in pre-tax profits from pounds 19.2m to pounds 5.5m for 1992.

Pilkington is paying a premium of more than pounds 52m for the Heywood businesses, which have net assets of pounds 42.4m. They made trading profits of only pounds 500,000 last year after exceptional restructuring costs of pounds 2.2m. Turnover was pounds 154m. Pilkington shares closed up 7p at 108p.

Roger Leverton, Pilkington chief executive, said: 'We paid a fair price.'

He added that the deal represented an ideal opportunity to take control of the glass distribution chain and brought the group into line with its principal competitors in Europe, which are vertically integrated.

'There were concerns that Pilkington in the UK was a less effective operation without downstream businesses,' he said.

Pilkington already supplies the businesses it is buying with 60 per cent of their glass. 'The other 40 per cent means a lot to us,' Mr Leverton said, 'and these businesses will then account for 25 per cent of our float glass production.'

The group said it expected the acquisition to enhance earnings. Pilkington is funding the deal from existing borrowing facilities, but the acquisition will push gearing up 10 percentage points to just below 90 per cent.

But Mr Leverton said that would be mitigated by the sale of the Sola spectacle lens business. Pilkington announced it wanted a buyer for Sola in December.

The acquisition will also help reduce Pilkington's advance corporation tax bill by adding UK profits to the business.

Ralph Hinchliffe, Heywood's chairman, said: 'This is a very good deal for Heywood Williams and its shareholders.'

The structural change in the glass market made it uneconomic to continue with a stand-alone processing and merchanting business.

He added that Heywood would use the proceeds of the sale to eliminate borrowings and to expand the group organically and by acquisition.

Heywood's profits slump last year was attributed mainly to poor trading conditions in the UK, where operating profits plunged to pounds 4.2m from pounds 17m.