Bunzl to buy GKN division: Packaging company to raise pounds 17m for purchase of catering firm

An expected series of strategic acquisitions planned by Bunzl kicked off yesterday when the paper and packaging company announced plans to raise pounds 16.75m to buy a catering division from GKN, the engineer.

Automatic Catering Supplies, one of several peripheral companies GKN is expected to sell off, provides vending ingredients and plastic disposable products to a UK market estimated to be worth about pounds 500m.

Anthony Habgood, the Bunzl chief executive brought in two years ago to resuscitate a company then on the brink of collapse, said ACS had about 8 per cent of the UK market.

He said: 'The obvious intention is to grow the company, and it is a possibility that it could be expanded into Europe. We will just have to wait and see.'

Bunzl is raising the purchase price through a placing via SG Warburg of 12.98 million shares at 129p. The new shares will be entitled to the interim dividend declared at the year-end.

The acquisition of ACS was described by one analyst as a 'good price for a good fit' which should enhance earnings. Bunzl shares fell 1p to 133p. However, there was a feeling in the city that Bunzl has still not yet defined a clear corporate direction, despite a big restructuring to concentrate on core businesses. Mr Habgood responded: 'Our strategy is to build on our strengths and grow the businesses that are doing well.'

At the year-end results in March, when Bunzl increased trading profits from pounds 49.7m to pounds 56.4m, Mr Habgood said he was planning a series of acquisitions. That is still the policy, he said yesterday, though nothing was imminent.

ACS operates through 17 UK branches, employing 400 people, supplying mainly in-house and contract caterers. Pre-tax profits last year were pounds 2.5m on a turnover of more than pounds 42m.

Bunzl's largest and most successful businesses are in paper and plastic disposables, which had sales in 1992 of pounds 565m and made trading profits of pounds 31.6m. Its US paper and plastic disposable division is the biggest within the group. Bunzl also has a similar business in Australia.

Mr Habgood said all divisions apart from fine paper, which had been hit hard by recession in mainland European markets, were strongly ahead of last year. 'Currently prices appear to be hardening in paper and plastic disposable products in the US and there are some signs that the general economic situation in the UK is continuing to improve,' he said.

GKN, which this week reported pre-tax profits virtually unchanged at pounds 60m, is being urged to dispose of non-core operations and concentrate on its motor and defence industry sides. Several small sales are expected as the company gets rid of businesses acquired in the 1980s. The sale of ACS raised speculation about GKN's three other vending operations - the manufacture, repair and finance arms. But the company said these were not on the market.

The shares were up 9p to 499p in a rising market.