Travis starts due diligence work on BSS

Published:  01 June, 2010

NORTHAMPTON: Travis Perkins has started four weeks of due diligence on BSS with reports of a counter bid fading.

Travis Perkins made a £533m play for BSS on Friday in a move that would see it overtake Wolseley as Britain's biggest building products distributor. Some of BSS' largest shareholders, that include BlackRock, Schroders and Axa, are expected to support the indicative offer of 232.91p in cash and 0.2608 Travis Perkins shares per BSS share, plus BSS' final dividend of 6.09p.

Analysts suggested that Jewson, owned by Saint Gobain, the world's biggest building materials supplier, may be the best-placed company to enter the running, however it said it will divest its glass packaging business before it makes any acquisitions.

Wolseley, Travis Perkins' next-closest rival, is not expected to be in the race as it is in the middle of downsizing and cutting costs. Several private equity groups have previously considered BSS and may produce a counter bid, but it appeared Travis Perkins had set the price bar too high for mid-market private equity firms to be interested,

Consolidation in the construction sector has long been tipped as public sector spending cuts force firms to find efficiencies and cut costs. Rupert Rawcliffe, director of construction at Grant Thornton, said: "The coalition's spending cuts will drive consolidation in the sector. Firms need to get scale and get costs out of the system."

Geoff Cooper, chief executive of Travis Perkins, said it is not as exposed as other businesses and the offer for BSS was not about shielding Travis Perkins from cuts but more about benefiting from an expected increase in demand for heating materials to meet the government's green targets. "This is not to do with cuts: 80% of revenues of both Travis Perkins and BSS are repair and maintenance work and less than 10% of both businesses are public sector. It is, however, about aligning the business for the green agenda as people green up their homes," he said.

After a tough winter, Travis Perkins has seen improvement in the market. This month it reported that its revenue was up by 2.2% for the four months that ended on April 30, with like-for-like sales up 1.4%. Wickes accounted for about £1bn of the group's £3.2bn revenue for 2008.

BSS, founded as British Steam Specialities in 1899, has also come under pressure during the downturn, revealing this week that annual profits had fallen 24% to £44.2m.

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