BPB works to bolster defence against hostile French takeover

City sources say the British plasterboard maker is considering gearing up its balance sheet to fend off the approach from Saint-Gobain, one of France's most prominent companies.People close to BPB said it was examining ways of raising significant amounts of cash that could be used in its defence. They said the UK firm is also looking at other options but did not specify what they might be. BPB has already said it will pay £350m to shareholders and lift its dividend by 44%. However, Dresdner Kleinwort Wasserstein analysts have suggested BPB could double the pay-out and still retain a sound financial profile. BPB executives are studying the offer from Saint-Gobain and have 14 days to respond to it under takeover rules. "This offer is an excellent opportunity for BPB shareholders to realise a cash exit from their investment now," Saint-Gobain said last week in a statement posted on the Stock Exchange.

Saint-Gobain announced an indicative 720p a share cash proposal on August 3, taking the offer hostile after BPB rejected both this, and an earlier indicative proposal, at 675p. Saint-Gobain said the offer price was a full and fair one, and at a 40.5% premium to BPB's closing price of 512.5p on July 20, before the initial proposal. Jean Louis Beffa, Saint-Gobain's chairman, has invited BPB management to join his company.

In the offer document sent to shareholders last Wednesday, Beffa said he hoped the BPB management team would "continue to oversee the further development of this new division [of Saint-Gobain]" should the bid succeed. Beffa said in the offer document he believed BPB would benefit from being part of Saint-Gobain. "The business rationale for combining the two businesses from a product and geographic perspective is compelling," he said.

At 720p a share, the bid was pitched at a price/earnings multiple of 18.9 times, higher than those seen recently in the market, the group said.
BPB management has repeatedly spurned Saint-Gobain's approaches; even though directors stand to earn a significant windfall should the offer go through.
Describing Saint-Gobain's bid as substantially undervaluing the company, the BPB board reiterated its advice to shareholders "to reject this unwelcome offer of 720p per share". Based on information in the annual accounts, management could be entitled to a pay-out of about £20m in severance pay and share option buy-outs if the company is taken over at 720p a share. Investors and analysts are divided as to BPB's true value, with some suggesting a bid price of 750p to 800p is more realistic, particularly after BPB sweetened its value by flagging a share buyback and pledging higher dividends. The price also depends on what cost savings Saint-Gobain believes it can achieve in absorbing BPB. UBS and BNP Paribas are advising Saint-Gobain, while Rothschild is advising BPB. BPB is shoring up its defences to fend off a £3.6bn cash bid from French glassmaker Saint-Gobain in what promises to be one of the London Stock Exchange's biggest hostile takeover battles for years.

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