The prospect of a takeover bid by building materials group Grafton for its smaller rival Heiton has intensified after Grafton brought its stake in Heiton to 22.5 per cent after buying more shares in the market.
Grafton has been building up its stake in Heiton for almost 21/2 years, but that stake-building has accelerated in recent months.
In May, Grafton bought 2.42 million shares (5 per cent of Heiton) from Setanta Asset Management to take its stake to 18.8 per cent. This week, Grafton bought another 1.91 million shares for around €5.3 million (£4.17 million) to take its stake to 22.5 per cent.
So far, Grafton has spent around €30 million buying Heiton shares and market sources believe this amount of money is not being committed to Heiton purely as an investment.
There is little doubt in the market that this slow stalking of Heiton by Grafton is a precursor to a fully fledged bid. At its current price in the market, Heiton is valued at €138 million compared with Grafton's €430 million, but it is highly unlikely that the Heiton board would entertain any approach from Grafton at anywhere near that level.
At its current €2.75, Heiton is currently trading at little more than six times forecast 2001 earnings and the Heiton board is likely to look for a substantially higher earnings multiple before it would even look at an offer from Grafton. Heiton shares traded as high as €4.00 during 2000.
With debt at the end of this year forecast at almost €200 million, analysts believe that any approach by Grafton is likely to be in the form of a share swap, possibly with a small element of cash involved. Institutional investors in both companies, who currently have little interest in small-cap stocks, would be happy to see a merger of the two building materials groups.
A merger between Grafton and Heiton would also make it more difficult for a rival British group to break into the Irish market. Wolseley already has a presence in Ireland after buying the midlands group Heatmerchants in March 1999 for an estimated €25 million.
In terms of sales, Heiton is less than half of Grafton's size with sales last year of €369 million against Grafton's €830 million. However, the companies are remarkably similar in terms of products and activities. Both are in DIY - Heiton through Atlantic Homecare and Grafton through Woodies. Heiton's business also includes the Heiton merchanting operation, Sam Hire, Buckley's timber and the Cooper Clarke merchanting business in the UK.
Grafton operates as Chadwicks builders providers, CPI concrete products, Euromix and has a chain of merchanting operations in the UK.
