View from City Road: Kalon looks the better bet

IN JUNE, when Kalon launched its all- share offer for Manders, the attack bore the quick-fix traits of a hostile Eighties takeover. Kalon, big in downmarket paint, was trying to gobble up Manders, a paint, ink and property company, using a share price that was riding the crest of a wave.

Its strategy was to cut costs by making 500 people redundant, and to raise cash by flogging off Manders' pounds 50m shopping centre. To prove it deserved to win control, Kalon had to do more. It did.

Kalon argued convincingly that the growth in its earnings per share, dividend and share price during the past five years is sustainable. It also demonstrated it is well managed, although the pedestrian performance from Manders makes favourable comparisons easy.

However, British Steel Pension Fund and Finsbury Asset Management are not persuaded. They are spurning the bid because they dislike Kalon paper and, together with other smaller holders, rejections now account for 34 per cent of the total.

Manders shares are down 23p at 188p since news of the rejections emerged and the market price, 19 per cent below the value of the Kalon bid, reflects the likelihood that the bid will fail. Manders shareholders must be prepared for a further fall, assuming the bid does lapse.

The outlook for Kalon shares is altogether brighter. Undecided shareholders should accept the offer.