CPS buyer insists the price is right for investors

The Doncaster-based maker of pneumatic conveying systems for raw materials last week concluded its search for a buyer and recommended a 33.3m offer by Schenck Process, a private equity-owned German industrial group.

CPS said its low valuation on the Alternative Investment Market hampered its growth aspirations.

The takeover has been accepted by 54.1 per cent of CPS's shareholders, including its chairman Jim McColl and chief executive Alex Stewart.

But a fund manager at Henderson Global Investors, which has about 4.7 per cent of CPS's shares, told the Yorkshire Post he was "disappointed a high price is not being paid for what... is a good company".

Schenck's offer of 82.5p per share gives a 13.8 per cent premium to CPS's closing price the day before the takeover was announced, but is below the 88p it hit a month ago.

The bid also offers a 32.8 per cent premium to CPS's average price of 62.1p in the three months to the end of November.

CPS employs 520 people across 10 worldwide sites. Jochen Weyrauch, Schenck president and chief executive, said it had a bright future within the Schenck group.

"Our strategy is a forward strategy; it's a growth strategy," he said.

"Our logic is certainly not one of two (companies) joining together and then working on the cost side."

Schenck employs 2,100 staff in 27 countries and had annual revenues of 388m euros in 2009. Owned by European buyout firm Industri Kapital Investment Partners since 2007, it serves industries including cement, mining, food, power, road and rail.

Its businesses provide weighing, screening, automation and bulk handling.

Dr Weyrauch said CPS would boost its processing capability, and the group's MAC division, based in the United States, would extend Schenck's reach in the food industry.

The takeover will be via a scheme of arrangement, which needs the backing of at least 75 per cent of voting shareholders.

"If you look at the share price over the last three more months we have paid a significant premium for it," said Dr Weyrauch.

"We have valued the company not so much based on the share price, but very much based on what we believe the company is worth.

"We believe that we have offered a price that is hopefully very attractive for shareholders. It's very hard to say from a seller or buyer perspective what's a fair price."

CPS blamed the "continuing low valuation placed on the CPS Group despite the continuing strong performance of the business" as a key reason for seeking out a buyer.

The group said its small market value and the stock overhang created by big shareholdings kept it off the radar of UK fund managers.

Combined with its capital structure, investment needs and 12m pension scheme deficit, CPS said the buyout was "the most appropriate strategic way... to achieve its next phase of growth".

It said the low proportion of its shares in free float and the highly-concentrated nature of its shareholders has led to liquidity issues which affect it valuation and "restricts the ability of shareholder to exit their investment".

Icelandic investor Atorka is backing the buyout with its 24.2 per cent stake, as is Uberior Investments, the private equity arm of HBOS, with its seven per cent shareholding.

Mr Stewart last week expressed "sadness" at the fact CPS has not been able to fulfil its ambitions as a consolidator in the process industry.

"We wanted to be the acquirer and consolidator," said Mr Stewart, who holds 6.4 per cent of CPS's shares.

CPS is the latest Yorkshire plc to be targeted by predators in recent months. Recent buyout targets include utility support services group Spice and food producer Northern Foods.

Aim numbers keep shrinking

Latest figures show the number of companies on the Alternative Investment Market has continued to slide year-on-year since a peak of 1,694 in 2007. In October a total of 1,198 companies were listed on AIM.

Compared with a peak of 399 new admissions in 2005, so far this year there have only been about 60.

"CPS is a relatively small company and the appetite of UK fund managers for sub-50m market capitalisation companies has reduced markedly in the last three years," said Clyde Process Solutions.

An AIM spokesman insisted it was still the world's most successful growth market. Companies leaving it tended to be those at the smaller end of the market.