Redland may split up in response to pounds 1.7bn French bid

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The Independent Online
Redland's answer to a pounds 1.7bn hostile bid from French building materials group Lafarge may be to break itself up. The cash bid would create the world's biggest aggregates and roof tiles business. But Rudolph Agnew, Redland's chairman, insists there are better ways to please shareholders than saying "oui" to Lafarge. Sameena Ahmad reports.

Rudolph Agnew, Redland's chairman hinted yesterday that the group may be considering a full-scale break up to defend itself against Lafarge, the French buildings product group which yesterday launched a pounds 1.7bn hostile bid for the company.

Lafarge's cash offer at 320p a share represents a hefty 45 per cent premium over Redland's 220p low struck just a few weeks ago after the group posted disappointing half year results and a 24 per cent premium to Redland's closing price on Friday. Redland has proved a terrible investment over the last few years.

A combination of a slowdown in Germany - half its business - the strong pound, bad weather and an ill-judged acquisition of a French business for which it overpaid has hammered its share price which stood at over 600p three years ago.

Although Mr Agnew would not give details about whether the company planned to sell off or float either its aggregates division, 30 per cent of sales, or its bigger rooftiles business, he indicated that some kind of demerger was likely: "That is clearly one of the considerations in our defence," he said. "This is an exercise in getting the true value of this company in play. We have to do whatever we can to show the value of our businesses."

Analysts said that such a demerger, particularly of its UK and US aggregates divisions could release more value for shareholders than the Lafarge bid. Restrictions on quarrying sites means that demand for existing aggregates businesses is explosive and even tiny companies can command astronomical prices.

Last year, for example, Lafarge and Redland were involved in an extraordinary bidding war to buy Ennemix a tiny UK aggregates company. Lafarge finally won paying pounds 8.8m a full pounds 2m more than Redland's opening offer. "I expect the telephone to be red hot with offers," said Mr Agnew.

A break up plan could involve a trade sale of Redland's aggregates side with the company retaining its roofing business RBB. RBB is 43.5 per cent owned by German group Braas, which could leave Redland as a quoted vehicle for a partially owned company.

Redland's share price closed yesterday at 16.6p above Lafarge's offer price, indicating that the market expected a higher bid. However analysts questioned whether Lafarge shareholders would support Lafarge raising its offer significantly, given limited opportunities for costs savings from the merger. Apart from the UK, there is little overlap between Lafarge and Reldand aggregates business. Lafarge has no US operations and no experience of roofing tiles, 70 per cent of Redland's total sales.

Arend Dikkers, analyst at Salomon Brothers said: "There are no real synergies here. This is about Lafarge wanting to be bigger, especially in the UK. But in this industry there is no correlation between size and shareholder value. In fact it is the opposite. Bigger companies tend to do less well as they lose control of costs."