View from City Road: Two wrongs don't make a rights

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SHAREHOLDERS in Trafalgar House need good independent advice and need it badly. They should not rely on their directors as they have changed their minds about the company's value in the last five months. In October they said the 85p-a-share tender offer from Hongkong Land was too low; now they say shareholders should take up their rights at 60p.

Shareholders who have read the rights document must have concluded that they cannot look to the company's usual merchant bank, Kleinwort Benson, because it says it will not be offering advice to shareholders. The Kleinwort camp says, however, that it is advising shareholders through the directors. Either way, it is tarred with the same brush as the directors.

Nor can shareholders go to Robert Fleming, which is underwriting the pounds 205m issue. According to the document, Fleming is not advising Hongkong Land in connection with the rights. But it did advise it on the tender offer and has close connections with the group.

What should shareholders do now that the rights issue has been approved? At first sight it might be tempting to take up the rights issue at 60p and sell shares at the market price of 79p.

But shareholders should stay clear. The company has disclosed a worrying rise in borrowings since the year-end, another cut in the dividend and property write-downs. Trading is getting worse in the core engineering and construction businesses.

If Hongkong Land and its friends are prepared to put their money into Trafalgar, let them. Others should not follow suit.

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