OPINION: "Power behind the solution." No, it's not AIB's slogan, nor is it Elan's. It belongs to wee Kingspan, the Cavan-based building products group, which had all the hallmarks of a company destined eventually to join the international elite. Now that prospect has been sullied by revelations that it has bought an expensive pup in the US.

What is surprising is that problems at Tate Global Corporation, the US pup bought for $120 million (€138 million), emerged so quickly after the regulatory authorities had given their blessings to the deal. Tate became part of the Kingspan group in January 2001, yet Kingspan issued its first of three profit warnings two months later in March.

The Cavan company insists proper due diligence was carried out and that $150 million of firm orders in Tate's books were halved over the rest of 2001 because of the US economic downturn.

It could have overcome this problem had the price paid been dependent on the 2001 profit results. It appears that Kingspan went a different route and got warranties on orders; it has initiated binding arbitration against the former owners in respect of orders that did not materialise subsequently. It will claim that the sellers of Tate withheld vital information and that there was misrepresentation. Had that information been available, Kingspan would not have done the deal or, at least, would not have paid the sum agreed.

The arbitration group is not expected to sit until next year, but Kingspan will be going for the jugular; it is seeking total rescission of the deal - Kingspan would get its money back and the Baker family (the main shareholders) would get the company back. In any event, Kingspan expects to get substantial compensation.

This year, a former Tate executive joined Maxess, a rival owned by Japanese group Hitachi, which subsequently won some of the orders promised to Tate, on "crazy prices", according to Mr Eugene Murtagh, Kingspan's chief executive. Kingspan has also threatened legal proceedings against this person.

Tate's figures now are in sharp contrast to expectations. It had sales of $109 million in its last year before the deal. Sales will now be below $100 million in 2002, against an expected $200 million-plus.

Crucially, earnings before tax and interest were $10.9 million before the deal, a figure that is expected to slump to a loss of €5 million this year. Group earnings per share are expected to fall by around one-third to some 33 cents.

The shares, falling from €3.30 prior to the third warning, to around €2.60 this week, reflect this state of affairs. Big share deals prior to the last profit warning are being investigated by the Irish Stock Exchange.

Clearly Tate is not the company Kingspan thought it had bought. And this should be reflected in a substantial write-off in its 2001 accounts, out later this month. However, Kingspan is understood to have been advised that it does not have to have such a write-off.

It could be argued that a specific write-off at this stage - as Kingspan's advisers are working out the financial claim - would be playing into the hands of the Baker consortium of shareholders. Also, as Kingspan is going for total revocation, there is no need to have a write-off.

However, that course would hardly be prudent. The figures speak for themselves. Assets don't matter too much provided substantial profits and cash-flow are generated - but they do if expectations are not being met.

In effect, Kingspan bought assets with a value of just $16.6 million (€19 million) and the goodwill on the acquisition was estimated at a bulbous $80 million. Prudence would demand a fair whack of a write-off in the 2001 accounts.

The latest results - for the six months to June 30th, 2001 - showed intangible assets of €171.4 million, somewhat ahead of the €164.2 million of tangible assets. Net borrowings amounted to €232 million (they were at €110.4 million a year earlier), compared with shareholders' funds of €210 million, and put the gearing at more than 100 per cent. A write-off would, of course, further weaken the balance sheet. On a positive note, the interest payments were well covered at about eight times in 2000.

This latest cloud to hang over Kingspan is the third. In 1995, it was severely criticised when it was revealed that the four executive directors - Eugene Murtagh, Brendan Murtagh, Eoin McCarthy and Dermot Mulvihill - had received substantial tax-free payments from a royalty company, despite the assurance in the annual report that "there had not been any contract or arrangement with the company or any subsidiary in which a director of the company was materially interested".

The criticism led the company to buy the royalty company and pay the four directors £4.3 million (€5.5 million) tax-free between them.

The second cloud enveloped the company when Brendan Murtagh resigned as a director following revelations about share dealings. The company said while he "may inadvertently have disclosed confidential information to his sons, he did not encourage them to deal in Hewetson's shares [a British publicly company subsequently taken over by Kingspan], nor did he envisage that they would do so". He subsequently rejoined the board.

Kingspan, ex-Tate, is operating profitably. However, the taint of Tate is bound to be negative for the development of the group. However, Eugene Murtagh sees growth continuing and, as a mark of confidence, has invested $2.5 million on marketing Tate's products in the US.

Kingspan's investors who have seen their shares as high as €4.40 in 1998 will need to know there is more than power behind the solution.