The Investment column: Fairey bid shows up Burnfield

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The Independent Online
Fairey issued its hurried offer document for rival engineer Burnfield yesterday and with it a slew of facts and figures showing what an appalling investment Burnfield has been over the past five years. No one would argue with that - both capital value and dividend income have fallen 40 per cent over that period.

Burnfield rightly countered that Fairey's choice of period was highly selective, as they always are in hostile bid situations, and attempted to put forward its own three-year period, starting at the company's recent low point when it parted company with its previous chief executive. As always, a hostile bid has drowned hapless investors in a torrent of innuendo and half-truth.

The real story is, not surprisingly, a combination of the two sides' arguments, but Fairey wins on points. Burnfield has made some pretty awful acquisitions along the way, resulting in a hefty pounds 12m exceptional charge that will send it pounds 8m into the red this year. It has a poor history of disappointing shareholders with profits warnings and has seen its earnings per share go nowhere in the past five years. After a collapse in its dividend in 1993, the payout has edged upwards but is only a little more than half the 1992 level.

Against that backdrop it is now attempting to sell a pounds 20m seven-for- 10 rights issue to shareholders to fund an acquisition into a new area, vibration control equipment. The City reaction to the deal - 10 per cent off the share price to 100p - tells the story.

Normally the best thing to do in a bid like this is to wait for the arguments to unfold. In this case, that is not possible because Fairey says it will only go ahead with the one-for-four share bid if shareholders vote down the proposed acquisition and rights issue on 30 December. So, shareholders have to make a snap decision. Faced with stumping up pounds 630 for every pounds 1,000 of shares they own, the temptation to snatch a decent premium at yesterday's close of 141.5p is enormous. Sell in the market.