Savage welcomes bid: McKechnie's four-for-21 share offer worth pounds 47m

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The Independent Online
SAVAGE, the shelving and do-it- yourself products group where a profits warning signalled the onset of recession in 1989, yesterday celebrated the beginning of recovery by recommending a pounds 47m offer from McKechnie, the plastics and metal components company.

Shares in Savage, which warned last week that it was in bid talks, jumped 6p to 77p on news of the bid, having been 48p before the market was alerted to a possible takeover.

McKechnie's offer of four of its shares for 21 of Savage's values each Savage share at 80p. There is a 73.3p cash alternative.

Doug Rogers, chairman of Savage, said: 'We welcome the offer. Savage's growth prospects are better as part of McKechnie and the greater financial strength of the group will enable us to develop in the UK, Europe and US.'

Savage fell from grace in 1989 when it warned that demand had slumped for its curtain tracks, tile trim and hinges. Borrowings soared to match shareholders' funds and its shares fell from 202p to 18p in a year.

At the end of 1990 institutions demanded boardroom changes and forced through the resignation of Nick Savage, chairman, and David Brown, chief executive. After two years of losses Savage returned to a pounds 2m profit in the year to last June.

About half Savage's pounds 70m turnover is accounted for by shelving units, including a business bought from McKechnie. In the year to June it is expected to make pre-tax profits of about pounds 3.7m, with the McKechnie offer valuing the business at about 18 times forecast earnings per share.

Michael Ost, chairman of McKechnie, said the acquisition would not dilute earnings in its first year. Otherwise he remained cautious on trading at McKechnie after announcing flat interim pre-tax profits of pounds 10.8m from almost unchanged sales of pounds 141m. Earnings per share in the six months to January rose from 9p to 9.5p and there was a maintained 5p dividend.

Mr Ost said there were still no concrete signs of recovery in McKechnie's main markets, which include the construction, automotive and electronics industries. A planned expansion in Germany has had to be postponed because the recession has made valuing target businesses difficult.

During the first half car manufacturers destocked in Europe while in the US better trading from plastic components was offset by problems in packaging. Only in the Pacific region has there been real improvement.

Smith New Court expects profits this year of pounds 26m, putting McKechnie's shares, down 2p yesterday at 424p, on a prospective p/e of 19.

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