Blue Circle to disappoint shareholders over promised £400m capital return

Blue Circle Industries, the cement producer which recently fought off a £3.65bn hostile bid from French rival Lafarge, is likely to disappoint investors this morning by failing to provide a long-awaited update on its programme to return capital to shareholders.

Blue Circle Industries, the cement producer which recently fought off a £3.65bn hostile bid from French rival Lafarge, is likely to disappoint investors this morning by failing to provide a long-awaited update on its programme to return capital to shareholders.

It is thought the interim results, due out today, are not going to be accompanied by news on the £400m Blue Circle is still due to return to shareholders. The company escaped Lafarge's clutches partly through the promise that £800m would be given back to investors by the end of the year. It has already returned £400m through a shares buyback, following its success in fending off Lafarge in May. However, it has been resolutely silent on the method and exact timing of the return of the second £400m.

The problem Blue Circle faces is that the shares buyback only served to boost the already huge 29.6 per cent stake that Lafarge had built up in the British company during its bid. This is because Lafarge did not tender any of its shares in the buyback.

Lafarge, together with the shares held by its financial adviser, Dresdner Kleinwort Benson, has seen its stake boosted to 32.6 per cent as a result of this first buyback. A second round of capital reduction from Blue Circle, in which Lafarge is unlikely to participate, would see this hostile interest stretched to about 36 per cent. Lafarge is expected to make another bid for Blue Circle next May, as a year has to elapse before it can make a hostile offer. A friendly deal between the two parties could be done at any time. It is thought that if Blue Circle fails to meet the very demanding implied earnings forecasts it made at the time of the Lafarge bid, it would be forced to quickly open a dialogue with the French company.

Bertrand Collomb, chairman and chief executive of Lafarge, told The Independent he remains interested in Blue Circle. "The combination of Blue Circle and Lafarge still makes a lot of strategic sense. I'm keeping all opportunities open," he said.

An alternative way for Blue Circle to return the outstanding £400m would be through a special dividend. This would have the advantage of not increasing the Lafarge holding but it would hit investors with a tax bill and would not have the effect of improving Blue Circle's earnings per share, which a buyback automatically does.