Breaking up the house Ronnie built

Dismantling haulage to recruitment group Hays could value former Frost empire at £1.5bn

Hays, the road haulage to private postal group, drew a line under a heritage stretching back four centuries by unveiling plans yesterday to sell off everything apart from its staff recruitment business and return the proceeds to shareholders.

Analysts said the break-up could value the group at up to £1.5bn and release £600m in cash for investors. But they also cautioned that the process of finding buyers for all the unwanted businesses could be lengthy and complicated.

Hays can trace its ancestry back to the 17th century and the wharves and warehouses on the banks of the Thames which once bustled with commercial activity but which are now home to penthouse apartments. It was re-invented in its modern form nearly 40 years ago by Ronnie Frost who rented some of those self-same warehouses to launch a chicken trading business. Mr Frost went on to become Hays' chief executive and then chairman, leading it into the FTSE 100.

Today Hays has four main legs – personnel, logistics, private mail and a commercial division that provides business services such as call centres. The decision to dismember the group follows a wide-ranging review by the new chief executive, Colin Matthews, who joined last November after stints with British Airways and then the gas pipeline company Transco.

Mr Matthews defended his decision to rewrite four centuries of history in four months. "Ronnie Frost was fantastically successful in building up the business and nothing we have announced today is intended to knock that," he said. "But increasingly investors are looking for clarity in a business and focusing on just one sector provides that."

He might have added that the break-up of Hays follows a torrid time for the company which has lost two-thirds of its value in the past 12 months after a succession of profits warnings. Hays is still in the FTSE 100 with a market capitalisation of £1.3bn, although only just. Once it has been dispersed on the four winds nothing will be left but its personnel division, now the biggest leg of the group accounting for slightly over half of turnover and profits.

Mr Frost did not quite run the business as a personal fiefdom, but he and Hays were synonymous and although he left the group in 2001 he is still its fourth-biggest shareholder with a 4.6 per cent stake worth £58m.

He started his chicken business, Farmhouse Securities, in 1965 and merged it in 1980 with Hays, which was owned by the Kuwait Investment Office. After the stock market crash of 1987, Mr Frost persuaded the Kuwaitis to sell and went on to become the first and so far only chief executive to lead a management buy-out into the FTSE 100.

Mr Frost liked to lunch at his favourite table in the Savoy Grill, and owned one of the most luxurious (but under-used) yachts in the Mediterranean, the Blue Leopard. He was also wont to drive around his Surrey sheep farm in a Range Rover with one of his hips displayed on the dashboard. He had a double hip operation in the mid-1990s and wanted to strap the pair of them to the front grill but was told it would present a safety hazard to pedestrians.

Yesterday Mr Frost was refusing to comment on the dismantling of the empire he created. But friends of the former chairman said he was in cheerful mood.

Mr Frost took Hays public in 1989 and then used the capital markets to embark on a dizzying acquisition spree buying more than 40 companies. At its height, the group was worth £9bn. In 1997 Mr Frost made an audacious £1.2bn bid for the rival haulage company Christian Salvesen, only to withdraw it after the company's Norwegian family shareholders declined to accept his opening offer.

The new management is not from the same buccaneering mould. But, then, times have changed. "In the current circumstances, the decision to break up Hays was not so difficult," said Mr Matthews. "In fact, market conditions make it all the more urgent to do it now." He said the linkages between the four legs of the group – for instance the opportunity to sell more than one service to the same customer – were not as important as had been thought and certainly not enough to outweigh the advantages of concentrating on just one business.

He declined to put a timescale on the break-up or a figure on how much the disposals would raise. He said Hays had opted to sell the three unwanted divisions rather than demerge them because it would be more cost-efficient. Mr Matthews said that had Hays gone down the demerger route, it would have been more time consuming and costly, involving three sets of advisers to float the businesses and then three more sets of fees when the newly-demerged businesses were picked off one by one by larger companies.

By selling the businesses to trade or financial buyers, Hays' shareholders will incur a tax liability. But the group calculates that total costs, including tax charges and advisory fees, will amount to no more than 15 to 20 per cent of proceeds.

Investec Securities calculates the break-up value of Hays at £1.55bn, once debts of £248m have been deducted, or 91p a share compared with a closing price last night of 73.75p. It values the logistics business at just under £300m, the mail division at just under £200m and the commercial division at £162m. The personnel division, the only part being retained, is valued at £1.14bn by Investec.

"This is what the market wanted to see happen," said Investec's analyst Geoff Allum. "However, this will not be an easy strategy to complete and could drag on for the rest of the year."

Mr Matthews said the sale process for the logistics and commercial divisions would begin "imminently", indicating there had already been a large number of expressions of interest. The logistics division counts Waitrose, Carrefour, Nestlé, Sara Lee and Philips among its customers. Analysts say the most obvious buyers are rival operators such as Excel, Tibbet & Britten and UPS with TPG of the Netherlands and Deutsche Post also possible bidders.

The mail business could prove more difficult to sell, even though the postal regulator, Postcomm, has opened up the market by ending Royal Mail's monopoly. Hays has become one of the first companies to win a long-term licence to handle bulk mail for business customers. But crucially, Postcomm has yet to decide what price it will set for access to Royal Mail's letter delivery network, which is key to determining how easy it will be for rival operators to make money. Hays will therefore retain the mail business until it is easy to value it.

By concentrating on just personnel services, Mr Matthews hopes to deliver faster growth. The recruitment division's two main markets – the UK and Australia – are growing at 10 to 12 per cent but Mr Matthews aims to expand further into the even faster growing markets on the Continent. As part of this strategy, Hays yesterday announced the £48m takeover of the German IT recruitment specialist Ascena which operates in five cities in Germany and Switzerland.

It will require at least one and possibly several shareholder votes at extraordinary meetings to get the break-up approved and no-one yet knows which way Mr Frost will jump. Will he give a hip, hip, hooray, will he lead a shareholders revolt, or might he just be tempted to pick up one of the morsels on offer?