Plessey Co Plc didn’t take long to confirm our suggestion, made last Thursday, that it was in the market for a software and computer services acquisition (CI No 974): on Friday it pitched in with an agreed UKP164m cash bid for Martin Marietta Corp’s 68.3%-owned Hoskyns Group Plc – and said that it wants Hoskyns to retain its Stock Exchange quotation. The offer is 410 pence a share cash, a knockout 39% above the 295 pence close of business price Thursday night. As it is at 36 times historic and 27 times forecast earnings on the assumption Hoskyns does UKP9.5m in the year to October next, a rival bid is not likely, especially as Hoskyns is a people business, and a bid therefore needs the consent of the governed to be worth making. First reaction of the market was a kneejerk fivepenny markdown in the Plessey share price to 172 pence, but the fit looks good and software services companies are highly regarded – the market is tipped to grow 21% a year over the next five years – and if you want to buy one, you have to pay top dollar. The price of course looks high when set against Hoskyns’ UKP79m turnover for the year to October last – up 17% – but in the first half, the company saw pre-tax profits up 35% at UKP3.7m on turnover up 20% at UKP48m, so it should shoot through the UKP100m mark in the full year. Why can’t Plessey grow its own Hoskyns? It has been trying to do just that over the last several years, but the business still does only UKP12m a year, the problem being finding – or training – the necessary specialists – Hoskyns’ tangible assets are a mere UKP14.3m. Plessey’s business will now go into Hoskyns, swelling it further, and other Plessey information technology interests may also go into Hoskyns. Plessey wants to work with Hoskyns in network facilities management and value-added network services. Hoskyns will continue to operate under its present board, and in order to hold on to as many as possible of the staff, 2m Hoskyns shares will go into trust for the benefit of some 100 senior employees, being allocated over three years for as long as the employees stay with the company. All told, the company, headquartered in London’s Shaftesbury Avenue, has 2,000 people, 1,500 of them professionals. The executive directors have agreed to hold on to most of their 230,000 shares as part of the plan to retain Hoskyns’ listing, but that still looks a little problematical: the Stock Exchange doesn’t like less than 25% of the equity of a Full List company to be freely traded, and the offer price is so far above the market price that almost all holders are likely to accept – although some institutions are understood to have agreed to retain their shares. Plessey talks airily of Hoskyns issuing new shares in connection with further acquisitions – Martin Marietta’s stake was reduced to 68.3% from 75% as a result of the several acquisitions Hoskyns has made since it was floated – and it therefore sounds as if further acquisitions are close to being announced. Plessey indicates that if that is not the case, it will place enough Hoskyns shares with institutions to retain the quote, but that is likely to have to be at a price much closer to 295 pence than the bid price, which will look a little embarrassing. Why did Martin Marietta agree to sell? The assumption has to be that it has other use for the cash, and that while Marietta’s business is predominantly military, Hoskyns’ is mainly civil. Coupled with the acquisition from Singer, buying Hoskyns will wipe out Plessey’s comfortable little cash molehill, and leave it about 15% geared, but it’s difficult to argue that the cash could have been better spent.
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