Redland set to expand after pounds 220m reshuffle

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The Independent Online
Redland is set to receive pounds 220m as a result of the planned reshuffle of its roof tiles business, leaving it poised for further expansion in Europe.

The deal, first announced last month, will create the Continent's biggest manufacturer, providing the tiles for one in three European roofs. Redland is injecting its wholly-owned western European business into Braas, the highly successful 51 per cent-owned German subsidiary.

Redland's stake is set to rise to 56.5 per cent as a result of the swap and the cash will halve gearing to 25 per cent. Debt of around pounds 700m, will fall even further when the sale of the rest of Redland's bricks business is announced later this month.

Market estimates suggest that disposal could bring in a total of pounds 230m, including pounds 71m already received from the disposal of a stake in a Dutch business in February.

Commenting on the roof tiles deal yesterday, Robert Napier, chief executive of Redland who will chair the merged group, said: "One of the reasons we are doing this is because there are areas where we can grow further. France is one example."

The new business, to be called Redland Braas Building Group, would have access to cash flow from the German company to finance expansion. Other areas of Europe, apart from France, where RBBG will be under-represented, include the UK and Italy, although Mr Napier cautioned that monopolies constraints could hold back further acquisitions in the home market.

He said the deal should add to Redland's earnings in the first year after completion. The group's own business, including roofing activities in the UK, Holland, France, Spain and Portugal, would be valued at pounds 440m by the swap, giving an exit price-earnings ratio of 15. Operating profits of the Redland companies were pounds 38.5m last year.

By contrast, the merger values Braas at pounds 1.6bn, equivalent to a p/e ratio of 11, Mr Napier said. Profits last year at Braas of pounds 226m represented the lion's share of the pounds 355m made by the whole Redland group.

Although Redland's shares added only 1p to 410p yesterday, the deal was generally welcomed by the stock market. Robert Donald, an analyst with NatWest Markets, said it was "a breath of fresh air at Redland", which should have been done five, 10, 15 or 20 years ago.

"They are injecting assets which are underperforming into a company with a good track record and that must be good news for shareholders." He expects the merger to enhance next year's earnings per share by 2-3 per cent.