Polypipe in advanced pounds 337m merger talks

POLYPIPE, the plastic pipes maker, is in advanced talks that could lead to a cash offer of 200p per share, the company announced yesterday. The offer would value Polypipe at pounds 337m and an announcement on an agreed deal could come as early as this morning.

Polypipe shares soared 23 per cent to 193.5p on the news as analysts speculated on the identity of the possible bidder.

Attention initially focused on Hepworth, the Gloworm boiler and pipes company. The group declined to comment on market speculation, however its advisers pointed out that Hepworth had a much smaller deal referred to the Monopolies and Mergers Commission before Easter.

Insiders say a bid for Polypipe would also run into competition problems with the regulators.

Glynwed, the maker of Aga boilers, is seen as a possible predator as is IMI and Pipelife, an Austro-Belgian joint venture.

"There has been a process of consolidation in this sector so this is no surprise," one analyst said.

Polypipe is run by Kevin McDonald, its chairman, who started the business in 1980 after running Hepworth's pipe operations. Mr McDonald is Polypipe's largest shareholder with a 16.7 per cent stake worth around pounds 50m. But at 65, analysts say he could be looking to cash in his holding.

Polypipe has been seen as a possible acquirer in recent months and has been linked with a pounds 23m bid for Avonside. At its interim results presentation last month the company said it was ready to gear up for deals after interest rates had come down sharply.

Polypipe reported flat half-year profits of pounds 12m. In the last full year Polypipe recorded profits of pounds 34.6m on sales of pounds 273m.

Pipes and fittings account for almost 60 per cent of profits, with bathrooms and kitchens accounting for another 15 per cent.

It sells mostly to builders merchants rather than DIY superstores. The company also has interests in Germany, Poland and France.

Its drainage systems business would be attractive to a bidder. The company also has strong market positions in the manufacture of toilet seats, where it is number one in the UK, and in garden furniture.

"It is very difficult to thrive in this market if you are small," one analyst said. "And they have probably reached maturity in their core UK plastics business."

The building materials sector has gradually been consolidating although analysts say the process still has a long way to go.

Deals in the sector so far include the Lafarge takeover of Redland, CRH's takeover of Ibstock and the Etex deal with Marley.