The Investment Column: Yule's bid fails to cheer investors

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The Independent Online
Yule Catto yesterday emerged as the mystery suitor for Holliday Chemicals, and investors were not impressed. Yule shares plunged more than 10 per cent to 274.5p, dragging down the value of the cash and shares bid to about 229p per Holliday share.

According to Alex Walker, Yule's chief executive, this is a classic case of the City failing to see the strategic merits of a deal. He argues that the speciality chemicals industry is going global. Although there are no obvious cost-cutting benefits - plants will not be closed, huge numbers of people will not be laid off - this deal will give Yule distribution and marketing clout. Its portfolio of polymers, flavours and fragrances will also sit well alongside Holliday's pharmaceutical chemicals like ranitidine, the generic version of Glaxo's Zantac ulcer drug.

Still, at pounds 237m this is a big bite for Yule, which is currently worth pounds 280m. The company has never done an acquisition this size, and there must be doubts over whether the management can handle it. Another worry is the balance sheet. Pro-forma figures for last year show the combined group would have had interest cover of just over four times, though that will be more like five to six times when the deal goes through. Given Holliday shares were worth 119p, just half the current bid price, as recently as February, questions should also be asked about Yule's timing.

With the value of Yule's offer sliding, another bid may emerge. But that is unlikely, and even so a rival suitor would not have to offer much of a premium to the prevailing share price. Investors with Holliday shares should sell them in the market. And with Yule Catto likely to be on probation for at least 12 months, its shareholders should think seriously about putting their money elsewhere for the time being.

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