If Powerscreen International, the recuperating engineering group, succumbs to a takeover, it will represent a further denuding in the number of publicly-quoted Northern Ireland companies. Already Mackie International, once a historically proud group, now in receivership, is in the final stage of dismemberment. Ewart was removed when it was acquired by Dunloe. If Powerscreen goes, only six - BCO Technologies, Boxmore, Galen, Lamont, Ulster Television and Viridian - will be left quoted on the Irish Stock Exchange.
So instead of sprouting a whole host of new fledging groups, the numbers are dwindling. Indeed, the only new company is BCO Technologies. Some companies may be waiting in the background, like Norbrook Laboratories, for example, but Northern Ireland, regrettably, is not as good a breeding ground, for publicly-quoted companies, as the Republic.
The focus on Powerscreen is not surprising. Once new management was sent into Powerscreen, it was inevitable that interested parties would tap it on the shoulder. What is surprising is that a bid was not made before now, when the consideration would have been lower. But following the publication of the results for the six months ended September 30th 1998, last January, a suitor would have to pay for the recovery up to that date. Indeed, with the easing in the share price in London, to 146.5p sterling before the Easter break well below the suggested takeout price of more than 200 sterling, some investors are pouring cold water on a takeover at that price.
How things have changed. A year ago most shareholders would have been pleased to receive any offer.
They were then confronted with a deficit of £46.6 million sterling reported for 1997, due to problems at its subsidiary, Matbro. Astonishingly, the auditors attributed the problems to overstatements of the profit-and-cash position to conceal the subsidiary's underperformance. They identified an accounting breakdown, weaknesses in the organisational structure and inadequate attention to the finance function. They blamed the executive director - he subsequently resigned - for not focusing on either overall business activity or geographic location.
Whether the takeover talks are successful or not, a number of unanswered questions still need to be addressed. While the British Serious Fraud Office is continuing its investigation into the accounting irregularities, two questions are particularly relevant. Firstly, what are the institutional shareholders doing about their substantial losses? They threatened to sue because they subscribed for shares at 625p sterling per share, at a time when some directors knew about the imminent problems. Regrettably they are likely to sit on their hands and do nothing.
Secondly, the former executive directors, Mr Shay McKeown (chief executive), Mr Barry McCosgrove (finance director) and Mr Patrick Dooey (sales and marketing director), each received performance related bonuses. They were paid in 1998 in relation to the 1996/7 results.
The bonuses were calculated as a percentage of pre-tax profit in excess of £30 million. The reported profits were £42 million so that appeared fair enough. However, following a reassessment of the accounts, the restated figures fell to £15.8 million or below the target. So the bonuses should not have been paid.
Powerscreen said it was seeking legal advice on those payments. However, it is understood that no action has been taken. Shareholders should ask why. Shareholders will, of course, be pleased with the latest interim results which showed a marginal 4.2 per cent rise in turnover from continuing operations from £112.5 million to £117.2 million. More significantly an operating loss of £7.4 million was translated into an operating profit of £13.5 million. That indicated the first real change.
When the interim results were announced the shares were hovering around 120p sterling, valuing Powerscreen at £111 million sterling. Last week's announcement that it had a suitor, sent the share up to 149.5p sterling, valuing the company at £139 million sterling (£164 million) before falling back to 146.5p. And analysts reckon a buyer would have to pay more than 220p per share, based on 10 times this year's estimated earnings, to have any chance of success. That would value Powerscreen at £204 million sterling (£240 million). Considering that little growth is anticipated over the next few years that looks pricey enough.
In the context of the most recent past, that might look welcoming. However, it is a far cry from the high of 763p per share reached when it was riding high in 1997. While all that is over, and the company is on the mend, there does not appear to be any blazing trail ahead. NCB, for example, is looking for a pre-tax profit of £21.9 million (before an exceptional credit of £8 million, in the year ended March 31st 1999, rising to £23.9 million in 1999/2000 and to £26.2 million in 2000/1. Dividends could be resumed in 1999/2000 but only at around one-third the level in 1995/7.
While Powerscreen is back among the living, there is no bonanza ahead for the shareholders.
