Plastics group Barlo plans to bid for Athlone Extrusions, The Irish Times has learned. Barlo's expected move follows a sharp rise in Athlone shares in the past two weeks: they have risen from a low of 65 cents to 85 cents where Athlone is valued at €39 million (£31 million).
Spokesmen for Barlo and Athlone would not comment on the likelihood of a bid. It is understood there have been discussions between the companies aiming to agree a bid the Athlone board could recommend to its shareholders. Next Thursday Athlone Extrusions reports its results for the year to the end of September.
Given that Athlone Extrusions was floated at the equivalent of €1.15 a share in January 1998 and that directors bought almost 10 per cent of the company last year at 83 cents a share, market sources believe that any agreed bid will have to be pitched substantially above the current Athlone price of 85 cents. With analysts forecasting full-year earnings per share of 11.5 cents, Athlone is currently trading on a prospective price/ earnings ratio of 7.4.
With gearing of less than 7 per cent, Barlo could easily handle a bid for Athlone without having to raise money through a share issue.
Athlone's main business is the manufacture of extruded polystyrene sheet and film which is used in non-food packaging. Barlo, which is currently valued at €160 million, is also involved in extruded plastics. It has an extensive business extending from its Belgian main plant to Newbridge in Ireland and other locations in Spain, France, Germany, the Czech Republic and most recently Slovakia. Two weeks ago Barlo paid €13.6 million for a plastics firm in Slovakia.
The product of a 1990 management buyout, Athlone Extrusions has had a difficult time since it came to the stock market in January 1998. Its initial market valuation of £42 million was substantially below the indicated £45 million to £50 million when the company first announced its flotation plans two months previously.
At the time of the flotation, Athlone indicated it planned to expand through acquisition. It wanted to establish a manufacturing base in continental Europe. The company said it could afford to spend £15 million on an acquisition without coming back to the market for additional equity capital.
From the flotation, Athlone's share price deteriorated steadily. The extent of the group's difficulties only became apparent at its March 1999 annual general meeting when a profits warning was given. Shareholders were told that sales volumes had fallen in the previous six months and that profits would be flat in the year to September 1999.
By October 1999, Athlone shares had fallen to 83 cents when six of the company's directors and nine managers bought 9.6 per cent of the company's shares being sold by former chairman Mr Pat Plunkett and ABN Amro, one of the main backers of the 1990 management buyout.
Following that purchase, the management holding in Athlone rose to 30.4 per cent, while another 19.5 per cent was held by the family of the late chief executive, Mr Pat Ryan.
At the time, Athlone finance director Mr Enda Cunningham said the £2.9 million investment in the shares was a recognition of "the value we see in the firm". Mr Cunnigham denied the purchase of the 9.6 per cent was a precursor to a move by the management group to take Athlone private. As with many other small capitalisation companies, Athlone has suffered from lack of investor interest.
Even though Athlone's financial performance has improved in the first half of this year - profits rose 21 per cent to €3.1 million - and full year profits are forecast to rise from €5.4 million to €5.9 million, the shares have remained very weak. The shares hit a low of 65 cents two weeks ago before the recent run in the shares brought them to the current 85 cents.
In contrast Barlo has traded strongly in the past few years and last year profits rose from €18 million to €23.6 million.
