Shares jump as Caradon buys Pillar: Purchase of RTZ division will more than double company's sales

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The Independent Online
THE BUILDING materials and cheque-printing company MB-Caradon more than doubled its sales yesterday with the well-flagged acquisition of a large part of Pillar, RTZ's non-core building materials and engineering division.

The stock market reacted warmly to the deal, marking Caradon's shares up 24p to 336p, despite the fact that almost half the consideration is to be funded by a rights issue. RTZ's shares also rose, closing 9.5p higher at 712p.

As expected, Caradon - whose existing brands include Mira showers, Everest double glazing and Twyford bathroom products - is paying pounds 800m for a collection of businesses of which the best known is MK, the UK's leading plug, socket and wiring systems company.

Peter Jansen, Caradon's chief executive, said: 'This is a good deal for both companies. We will benefit from recovery in both the US and UK, we can improve margins, and earnings will be enhanced.' He added that Caradon had first approached RTZ about a possible deal two years ago.

Pillar's portfolio of businesses also includes: Friedland, which supplies almost 90 per cent of Britain's doorbells; Catnic, which has half the steel lintel market; and Garador, the market leader in garage doors.

Nearly all Pillar's business is in either the US or UK. In America, it makes doors and windows, air conditioning systems and aluminium products. Three quarters of sales are in building materials with smaller automotive and industrial divisions.

The turnover of the businesses being acquired was pounds 981m last year, from which they made an operating profit of pounds 75.4m. That compared with Caradon's sales and profits last year of pounds 664m and pounds 126m.

Caradon signalled its intention of making a substantial building-related acquisition in April when it sold a 25 per cent stake in CarnaudMetalbox, the Anglo-French packaging company, for nearly pounds 500m.

The company has been under mounting pressure to spend its cash pile, which has been earning interest at about 6 per cent since the Carnaud disposal.

RTZ, the world's largest mining company, had also made clear its desire to concentrate on its core business. Earlier this year it acquired two coal-mining businesses in the US, and it will spend the proceeds on further metals and minerals operations.

At the end of June, Caradon had pounds 331m in the bank. A further pounds 334m will be provided by a one-for-four rights issue at 260p a share, with the remaining pounds 135m coming from bank borrowings. Gearing after the deal will be 24 per cent.

Caradon brought forward the announcement of its interim profits to coincide with the deal. They showed a jump in pre-tax profits from pounds 60.6m to pounds 152.8m, although pounds 100m of the improvement related to a profit on the sale of the Carnaud stake.

Stripping that out, profits emerged at pounds 59.5m, 2 per cent down on last year. Earnings per share were 7.2p compared with 7.6p, and the interim dividend rose 3 per cent to 2.83p.

Continuing operations showed an pounds 8.1m improvement from last year's pounds 42.5m to pounds 50.6m, but the increase was more than offset by the reduction in contribution from Carnaud, sold midway through the first half.

Both Mira and Everest gained from higher volumes. But a move towards lower-priced products and tough price competition eroded margins from bathroom products.

Caradon remains heavily dependent on its US cheque-printing activities, where improved margins led to a 40 per cent rise in operating profits to pounds 24m. There was a one-month contribution from Checks in the Mail, a Californian cheque manufacturer acquired in May for dollars 88m (pounds 59m).

Mark Hake, building materials analyst at Nikko Europe, expects profits to jump from pounds 123m this year to pounds 180m in 1994, when Caradon will benefit from a full year's contribution from the Pillar businesses.

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