The Investment Column: Redlands needs white knights

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The Independent Online
What would Redland be worth in a break up? Lafarge, the French group, is offering 320p cash for its building materials rival. Rudolph Agnew, Redland's chairman and a veteran of hostile takeovers, is arguing that there is greater value in Redland's assets than that.

To prove it he may need to find white knights either to buy the whole group or, more likely, to buy its aggregates and roofing divisions separately.

How much could these pieces fetch? Taking aggregates first, on a typical take-out multiple of 11 times forecast operating profits for 1997 of pounds 90m, the UK and US aggregates businesses are worth pounds 990m. On top of that add roughly another pounds 150m to reflect the assets of French aggregates, though currently lossmaking. That gives a total value for aggregates of pounds 1.14bn. However the scarcity of holes in the ground worldwide means Redland aggregate might actually fetch closer to their current book value at the half year of pounds 1.25bn at constant exchange rates.

On the other side is RBB, Redland's roof tile business, an undoubted world leader despite the hit from Germany's weak economy. RBB can probably command at least 16 times forecast after-tax earnings of pounds 80m, or pounds 1.3bn in total. The snag is that Redland only owns 56.5 per cent of RBB, so its stake is worth just over pounds 800m, adjusting for RBB's own pounds 100m of debt this year.

Add up the two and subtract Redland's pounds 420m group debt and you are left with just over pounds 1.65bn, or 317p a share. That excludes the tiny and lossmaking Asian business. The end result is almost exactly the value of Lafarge's initial bid.

However this business has been badly managed and any bidder would expect to reap synergies and possibly tax benefits. Cost savings of some pounds 20m would imply at least another 20p to 30p a share on the offer price. A second bidder emerging would add more. Certainly Redland's share price, up another 1.5p to 340p yesterday, reflects expectations of a higher offer.

There may be no bonanza of hidden value for Mr Agnew to unlock.

But even another 20p is worth hanging on for.