Grafton, the Woodies DIY group, has made a takeover approach to British Dredging (BD), a publicly-quoted builders merchant company, in which it has a 29.9 per cent stake, according to reliable sources. British Dredging, which employs more than 500 people from a network of outlets in the British West Midlands and Wales, would not identify the interested party. However it said the approach "may or may not lead to an offer". Grafton said it could make no comment. However, Grafton's stake is just below the level which would trigger a mandatory bid. It paid about £7.6 million sterling, or an average of 145p per share, for its existing stake which it started purchasing less than a year ago. British Dredging shares rose 26p to 152p yesterday, following the announcement.
At a price of 160p, the outstanding equity in BD would cost Grafton £20 million sterling (£24 million). This could be financed quite easily. While its gearing at the end of June 1997 was 43 per cent, this is expected to drop to between 15 per cent and 20 per cent by the end of December 1997. Also BD, following a spate of asset sales, and with more in the pipeline, is cash rich. It had net cash of £4.9 million at the end of December and, if the other potential sales go ahead, this could rise to more than £12 million.
The BD board, owning less than 1 per cent of the equity, is not in a strong position to oppose a bid but it could use its strong cash position as a weapon to beat off any unwanted bid. BD has 1,850 shareholders. The largest, apart from Grafton, are M&G (with 11 per cent), RMC (9 per cent), and Mercury Asset Management (under 10 per cent).
BD has had a cyclical record in line with the British building industry but last year it increased its pre-tax profit from £1.9 million sterling to £2.1 million. It is line to record a rise to £2.4 million in 1997 but this will exclude exceptional profits on two disposals. Grafton is expected to record a profit of £17 million in 1997. It has been much more expansionist than BD. BD and RMC have each a 50 per cent stake in British Dredging Aggregates. If a bid was made for BD, RMC might exercise its contractual right to acquire the other 50 per cent, BD said. But BD also has the right to force RMC to make the purchase. This would be for a minimum consideration of £4.88 million compared with a book value of £1.3 million which would result in a net (after tax) gain of £3.2 million.
