View from City Road: Trafalgar bares its soft spots

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The Independent Online
IF HONGKONG Land can have such a huge impact in just five days, think what it might do for Trafalgar House in a year. It has got this far through buying a 15 per cent stake - it is not clear why it needs to increase its stake further.

HKL has already prompted a jump in Trafalgar's shares from 60.5p just before it launched its partial offer and 39p not so long ago to 84.5p yesterday, where they closed just below the tender price.

Just as importantly, it has forced Trafalgar to clarify a number of issues. First of these is the dividend - the company will be paying a final of 1.6p, making a total of 6p. Second, it confirmed that it has put its hotels up for sale and wants to find a joint venture partner for its cruise ships. Third and most confusing to shareholders suffering from unexpected costs of the Davy acquisition, it spelt out the importance of the engineering and construction business, now including Davy, in the group's structure.

That said, there were a number of important omissions, perhaps reflecting the speed at which the document had to be put together. Although there was an admission that there would be write-downs on housing land and other properties, there were far too few figures to go on. Housing land is probably overvalued by about pounds 25m but it is not clear how much should be written off the rest of the portfolio. There was also no further news on the disastrously timed run- in with the Financial Reporting Review Panel.

Sad to say, nothing that Trafalgar said changes the widely held view that it needs new management at the top. It has admitted that it is reviewing its management succession, which is not surprising with Sir Eric Parker, the chief executive, a year off retirement and Sir Nigel Broackes, the chairman, only one year his junior.

Shareholders should have had the nerve to press for changes themselves rather than let HKL take the credit. If they let HKL increase its stake to 30 per cent they will rob themselves of any future bid premium.

Some large investors are bound to accept the 85p offer for part of their holding, especially if they did not sell any shares in last week's dawn raid. But most should reject the short-term attractions of HKL's offer and enjoy the benefits of the Keswick family's intervention - and the recovery - from the sidelines, despite a risk that the shares may slip back after the tender closes on Friday. If HKL wants control it should have launched a bid for the whole.

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