Predators close in on Pilkington

Venture capitalists aim to take glass-maker out of the stock market in deal worth pounds 1.3bn
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PILKINGTON is being circled by a clutch of venture capitalists eager to take the glass manufacturer private in a deal likely to be worth at least pounds 1.3bn.

Sir Nigel Rudd, Pilkington's chairman, is said to have come close to a deal with a private equity consortium earlier this year when the company's shares were close to this year's low of 48p. A price was agreed with Schroders, the merchant bank which advises Pilkington, but a sudden improvement in Pilkington's share price put paid to the deal. The approach was one of about half a dozen that Pilkington received from financial buyers, a source close to the company said.

Although Pilkington shares have risen since to close on Friday at 91p, some industry analysts believe that an approach from a private equity group is once again imminent. The most likely buyers are thought to be American buy-out specialists like Kohlberg Kravis Roberts (KKR) and Hicks, Muse, Tate & Furst. Both would have the firepower to contemplate a deal of this magnitude.

Last year, KKR paid pounds 951m for Willis Corroon, the UK insurance group, while Hicks, Muse recently completed the pounds 822m takeover of Hillsdown, the British food group.

One analyst said: "Venture capitalists are looking at Pilkington and see a company with excellent cash flow which the market price does not reflect. They are just waiting for another dip in the share price which usually happens in July when the building products market is typically weak."

The analyst estimated that a likely bid would be worth 120p a share, a 32 per cent premium on Friday's close. "A financial buyer would expect to get out at nearer 320p a share," he added.

Previous takeover speculation has centred on the prospect of a trade buyer launching a bid. St Gobain was cited as the most likely bidder, but the European Commission is said to have indicated that the French company would be barred from executing such a deal. However, St Gobain would be permitted to take control of certain parts of Pilkington's business, such as its South American operations, should a private equity buyer decide to break up the company.

Paulo Scaroni, Pilkington's chief executive, has won widespread admiration for his stewarding of Pilkington. Since taking over two years ago, he has cut the workforce by almost 8,000 people, contributing to annual cost savings of pounds 160m.

Last month, he unveiled plant closures in the US and Germany which - coupled with other savings - would account for another 2,500 jobs.

Results for 1998 showed pre-tax profits of pounds 118m, up from pounds 105m for the previous year, despite the underlying weakness in some of Pilkington's most important markets, notably South America. Nevertheless, Pilkington's share price has struggled to break through the 100p barrier, fuelling speculation that bidders remain interested in an approach.

The City has belatedly begun to recognise the value represented by Pilkington shares. A number of brokers have recently upgraded their recommendations for the stock, including Merrill Lynch, Dresdner Kleinwort Benson and Credit Suisse First Boston.