Blue Circle cements its defences against Lafarge

Blue Circle Industries is ready to reject a revised offer form Lafarge, the French aggregates company.

Lafarge's bid is currently worth 420p a share, or £3.4bn. But after a spirited defence by the British cement group, which last week said it would return £800m to investors, the share price closed on Friday at 431.5p, indicating that Lafarge would have to raise its offer this week to win Blue Circle.

Lafarge will be meeting with its investment bankers, Dresdner Kleinwort Benson, to work out where it should pitch its new offer. The City has been divided, with some analysts saying that as little as 450p could win Blue Circle, while others have said that Lafarge would have to pay 500p a share to prevail.

It is expected that Lafarge will make its pitch at a point between the two, offering 475p in a bid that values Blue Circle at £3.84bn. Although Lafarge remains keen to win the bid, it is also concerned that if it pays too much this will knock its own share price, which has been under pressure since it made the original bid.

Last week Blue Circle's chief executive, Richard Haythornthwaite, increased the group's chances of survival with a strong defence document, the first to make an impact on the bid battle.

An earlier document, aimed at highlighting the strength of Blue Circle's property assets, was ridiculed in the City. While Blue Circle wanted to point to the success of the Bluewater shopping complex, in which it has a stake, investors' attention was distracted by holdings such as the Dunbar Golf Club, with an annual rent of just £1, and a shooting lodge where shooting rights have lapsed.

The latest defence document concentrates on the possibilities for Blue Circle's businesses in Asia. It says that the growth prospects of these business are such that they should be delivering £90m of profits by 2002, more than twice the current levels.

However, Lafarge has raised doubts about the likelihood of these profit improvements emerging, arguing that the Malaysian market, where much of Blue Circle's operations are based, is already suffering from chronic over-capacity and is subject to price controls by the Malaysian government.