Fibres firm tells shareholders to accept takeover

In a letter to shareholders, Chapelthorpe chairman Leslie Goodman said the offer by activist Swedish investor Peter Gyllenhammar may be the best opportunity for them to cash in their stakes. He also warned holding out as a minority shareholders risks "significant potential disadvantages".

Mr Gyllenhammar has offered 25p a share and wants to de-list the Bradford-based company from AIM.

Almost a month after Mr Gyllenhammar seized control of the 61-year-old group by buying out its second-biggest investor, independent directors told shareholders they plan to take up Mr Gyllenhammar's offer, and recommend they do the same.

Mr Gyllenhammar's investment firm Bronsstadet AB (BAB) paid 1.3m for Hanover Investments' 24.8 per cent stake last month to give him 54.6 per cent and effective control.

He then made a mandatory offer for the rest of its equity, offering a 54 per cent premium to the group's average share price over the past year, but only a 4.2 per cent premium on the previous day's price. One analyst described the premium as "miserly".

"The offer price falls short of a price that fully recognises the recent trading performance and longer term prospects of Chapelthorpe and an appropriate level of premium for a change of control," wrote Mr Goodman, alongside chief executive Ian Powell and finance director Andy Weatherstone.

But he added: "There are significant potential disadvantages for Chapelthorpe shareholders associated with the proposed cancellation of admission of the Chapelthorpe shares to trading on AIM and the majority interest of BAB."

Shareholders have until September 8 to accept Mr Gyllenhammar's cash offer. Mr Gyllenhammar needs the support of 75 per cent of voting shareholders to de-list.

The directors, who were advised by Brewin Dolphin, said if Mr Gyllenhammar takes Chapelthorpe private, any remaining shareholders may only have "limited protection afforded by general company law, which can be difficult to enforce".

They added even if the bid is not successful, Mr Gyllenhammar will have control of the group, its strategy and board.

"Shareholders who do not accept the offer may find it difficult to realise their Chapelthorpe shares in the future," they said.

Chapelthorpe, which makes fibres used in cars, tea bags, carpets, mattresses and concrete, was founded in 1949 when it joined the main market of the London Stock Exchange. It moved to AIM in 2007 and has about 330 staff.

Now an 88m turnover company, it recently returned to profit for the first time in six years and had been planning expansion. It also intended to resume dividend payments this year, but BAB has since vetoed this.

The independent directors said they did not know Hanover planned to sell out to Mr Gyllenhammar until the day before the BAB's announcement.

They added the group's share price has yet to reflect its

potential and has been held back by cyclical markets, low share liquidity, its pension scheme deficit, lack of a dividend and its low market value. However, they plan to vote their 1.9 per cent collective stake in favour of the bid.

Mr Gyllenhammar also wrote to shareholders and said "the costs of being a public company whose shares are admitted totrading on AIM outweigh the benefits".

He added he believes the group's share price has been hampered by its work in "highly mature markets", raw material prices and other costs and its pension scheme deficit.

He said BAB plans a review of Chapelthorpe's operations, and may change its board.

THE SWEDISH INVESTOR

Activist Swedish investor Peter Gyllenhammar has stakes in other Yorkshire firms including Leeds Group, 1st Dental and Abbeycrest.

Aged 56 and worth an estimated 100m, his strategy is to pick out "bombed out" shares trading at a steep discount to net asset value, then implement change.

He admits to losing "quite a bit of money" on chemicals firm Yorkshire Group, which went into administration in 2004 owing its banks 37.6m. Banks eventually clawed back 11.5m but unsecured creditors were left empty-handed.

Mr Gyllenhammar, a former stockbroker and corporate finance adviser, has invested in UK small cap companies since the late 1990s.

His investment firm Bronsstadet AB, of which he is the sole shareholder, last year reported profits of 21m Swedish Kronor (1.8m) on turnover of 303m Swedish Kronor (26.4m).