The board of Heiton Group has rejected a takeover offer from its larger rival, Grafton, because it considers the price to be too low. Grafton has not backed away, however, indicating that it continues to review its options.
"We're looking for a recommendation," said Mr Michael Chadwick, Grafton's executive chairman, last night.
A spokesman for Heiton said that the board was opposed to Grafton winning the firm "on the cheap".
It emerged yesterday that Grafton had made three approaches to Heiton over the past three weeks. The moves follow four years of stake-building in Heiton by its merchanting rival, but still came as a surprise to the market.
The latest offer of €6.35 per share, to be satisfied with a mix of cash and shares, has been described by Heiton as "a speculative attempt to take advantage of Heiton's future potential".
In a strongly worded statement, Heiton said the possible offer had come at an opportunistic time, since the firm is just weeks away from reporting its full-year results.
Heiton's statement also referred to the board's view that Grafton could be trying to "frustrate Heiton's ability to grow by acquisition".
This is almost certainly a reference to Brooks, the builders merchants group that was put on the market last month by its Finnish owner, UPM-Kymmene.
Heiton is thought to have submitted a bid for Brooks, while Mr Chadwick said last night that Heiton was Grafton's only takeover target at the moment.
Grafton made its first verbal approach to Heiton on May 28th, about 10 days after Grafton increased its holding in the smaller firm from 24 to 29 per cent. This approach of €5.85 was subsequently raised to €6.00 and then raised again to €6.35 after discussions were held.
The most recent approach was based on Heiton not paying a final dividend for the year ending April 30th. Analysts have suggested this dividend could be worth about 10 cents.
Shares in Heiton closed at €5.20 on Wednesday evening, the day before news of the offer emerged. On this basis, the €6.35 per share potential bid would represent a 22 per cent premium on Heiton's current trading level.
Talks between the two firms were broken off after the €6.35 offer, which values Heiton at about €325 million, was rejected.
A fusion of the two companies would create a formidable force in Irish merchanting. A combined Heiton/Grafton entity would hold about 19 per cent of the domestic builders' merchanting market and a further 16.5 per cent of the DIY market. Grafton posted operating profits of €123 million, with three-quarters of this drawn from its burgeoning UK business. Heiton is expected to report a 2003 operating profit of about €35 million next month.
Shares in both firms gained on the news, with Heiton finishing at €5.30, up 10 cents, and Grafton adding five cents to close at €6.50.
