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April 7, 1988


By CBR Staff Writer

Cray Electronics Holdings Plc has irrevocable acceptances with respect to about 41.2% of the shares of software and personnel services counter Marcol Group Plc, so its seven-for-ten share exchange offer for Marcol is well on the way to success. At the Cray closing price of 223 pence on April 6, the offer values Marcol shares at 156.1 pence apiece, against a price before the bid announcement of 84.5 pence – and a placing price last September, only a month before Meltdown Monday, of 115 pence. There is a cash alternative of 140 pence a share, underwritten by way of an agreement from S G Warburg & Co Ltd to pay 200 pence for share for any and all of the new Cray shares that Marcol holders do not wish to retain: the cash alternative is conditional on the offer for Marcol going unconditional. If everyone elects to take shares, Marcol will account for 12.4% of the expanded equity of Cray. And as a little encouragement to wavering holders, Cray says that current business for the year to April 30 has continued satisfactory, with particularly good performance from the Instrument & Control division and that the order book remains strong. Since it was reorganised in 1983, Marcol has specialised in systems and software for the aerospace, avionics and financial sectors – the last through its Helix Software Consultants Ltd subsidiary, and runs a contract specialist personnel operation. Cray, which is in mechanical, electrical and electronic engineering in the data systems, communications, marine, defence, instruments and process control sectors, says that it has been seeking a suitable software company to complement its hardware operations for several years. Cray sees the acquisition strengthening its competitive position in defence and communications by enabling it to offer complete solutions, giving it an edge over rivals without a software side, and enabling it to bid on larger contracts, to keep more of the added value on large contracts to itself, and to win more of its bids. Is Cray paying too much? On a historic basis, with Marcol showing earnings per share of 4.9 pence for the year to June 30 1987, Cray’s paper offer values the company at a whopping 31.8 times earnings; assuming Marcol does 5.7 pence a share this year after 2.15 pence at the mid-term, that still means 27 times earnings. The answer is that companies in the specialised niches occupied by Marcol are few and far between, and so command fancy prices.

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