Analysts says Spice offer will have to hit £230m

Spice yesterday rebuffed an "opportunistic" 197m offer from private equity firm Cinven, which analysts think could flush out other predators.

The Leeds-based group, whose work with utilities firms includes ranges from checking overhead power lines to installing water meters, said 56p a share offer "significantly undervalues" Spice.

Shares in Spice climbed 2.5 per cent yesterday to close at 51p. They have gained 85 per cent from their low of 27.5p in late March.

After a tough period which saw the departure of founder and chief executive Simon Rigby, Spice is regrouping under new chief executive Martin Towers.

It has offloaded two non-core divisions in recent weeks, selling its telecoms business for 32.8m and giving away its loss-making gas business. Mr Towers has made cutting debt and rebuilding investor confidence key to the group's strategy.

"We believe this approach significantly undervalues Spice, and the board has not entered into discussions with Cinven, or any other party, in relation to a potential offer for Spice," said the group.

"The board believes that the approach from Cinven is opportunistic and significantly undervalues the company."

Cinven went public with its rejected approach early yesterday morning, releasing a statement to the London Stock Exchange, prompting Spice to respond two hours later.

Cinven said it approached Spice's board more than three weeks ago, on May 24, but added it was responding to a seven per cent increase to the group's share price on Monday.

Although fluctuations of this level have been commonplace with Spice's shares in recent months, it is thought the Takeover Panel forced Cinven to put out the statement.

"Cinven believes that this indicative offer represented a significant premium for both the value of Spice's businesses and the recovery value," said the private equity group.

However, Liberum Capital analysts suggested the buyout firm went public with its potential offer to force Spice to talk to shareholders.

Gala Bingo owner Cinven said its offer was at a 51.4 per cent premium to Spice's share price on May 21, but added it is no longer in talks with the company. Analysts noted the offer was made a week before Spice gave its loss-making gas arm to Liverpool plumbing group Booth Securities at no cost – which will boost the group's profitability.

Spice is now considering what to do with its facilities business, the final part of its public-facing distribution business.

Yesterday it said a review of this business is ongoing, and analysts expect a sale for 8m to 10m. They said a serious bid would have to come in at between 65p and 75p, which would value Spice at between 229m to 264m.

"Martin Towers has done a very good job in terms of disposing of telecoms and getting rid of gas," said WH Ireland analyst John Cummins. "All of the big risks have been addressed or are being addressed." He said a realistic offer would be between 70p to 75p for the sum of Spice's parts.

Geoff Allum at Arden Partners said "confidence is returning in Spice and the shares have a long way to go," raising his target price from 60p to 70p

"This bid will not go through at this price," he said. "It would take at least 75p in our view to get serious talks underway."

Spice declined to comment beyond its statement, as did Cinven.

At centre of takeover talk

Spice joins a number of Yorkshire plcs under the takeover spotlight.

In March, Investec moved to swallow the rest of Leeds-based wealth manager Rensburg Sheppards it does not already own.

The all-share offer values Rensburg at 412m and was recommended by Rensburg.

Hargreaves Services, which owns Maltby colliery near Rotherham, last week walked away from a potential merger with Doncaster-based UK Coal, whose deep mines include Kellingley near Pontefract.

Struggling Batley-based lender Cattles is mulling a possible buyout by a charitable trust, to free it of a stock market listing and its obligations to shareholders.