Spice says no to the latest offer from Cinven

SPICE has rejected an improved offer from private equity suitor Cinven as too cheap and insists its prospects are strong as an independent company.

The Leeds-based utilities support company, whose services include checking for unbilled properties and maintaining overhead power lines, revealed the European buyout group returned with an offer which values it at between 218m and 229m.

Chief executive Martin Towers is now on an investor road trip, where he will gauge the level of shareholder support for the latest offer.

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Former chief executive Simon Rigby, who controls around nine per cent of the company's shares, said he will meet management and urge them to open talks with Cinven – something they have so far refused to do.

"I would have thought it's worth talking to them at this level," said Mr Rigby. "At the end of the day it's down to shareholders."

Three weeks ago Spice said a 56p a share offer made in May

was "opportunistic and significantly undervalues" it. Yesterday Spice said Cinven's latest offer, priced at between 62p and 65p a share, simply "undervalues" the group.

"I cannot speculate either what will happen next or what the right sort of price would be," said Mr Towers, adding the offer was made within the last few days. Analysts have previously said Cinven needs to return with 75p a share to get Spice talking.

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Cinven's approach was said to include conditions including bank

financing. The buyout group declined to comment.

"We've not so much rejected it, it's just that we are confronted with something you really cannot get your arms around," said Mr Towers, adding the takeover situation was not hampering his running of the business.

"Having said that we do not want these things to run and run forever," he said. "We do need closure on this at some sort of time."

One possibility could be asking the Takeover Panel to impose a "put up or shut up" order on Cinven.

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Mr Rigby, who left the group in February after founding Spice more than 15 years ago, said he has not decided what to do with his stake, but added he has not talked to Cinven.

"I've got to hear what they (Spice) have got to say," he said. "I'm going to be interested in what value they can create for shareholders compared with the value that Cinven are prepared to crystallise for shareholders.

"Spice is a very good company. The due diligence will stand up to scrutiny, I've no doubt about that."

The group has offloaded two non-core divisions in recent months,

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selling its telecoms business for 32.8m and giving away its loss-making gas business.

Yesterday it reported an 11 per cent increase in underlying revenues to 311m, but the writedowns from the disposals drove it to a 56.2m loss. Pre-tax profit from continuing operations was in line with analysts' expectations at 32.7m.

"We've good regulatory and environmental drivers," said Mr Towers. "I feel very confident about the future of Spice."

Spice also has just two per cent exposure to the public sector, so expects to be largely unaffected by spending cuts. It has extended a number of contracts, including one with Yorkshire Water, estimated by analysts to be worth 20m.

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It could resume acquisitions to take advantage of consolidation opportunities to increase its energy division's international reach, although purchases will "not (be) on the same scale that Simon did with seven divisions".

Spice now has net debt of 91m following the telecoms sale. Mr Towers has pledged get this down to a ratio of two times net debt to earnings before interest, tax, depreciation and amortisation.

The group upped its final dividend to 1.22p per share, meaning its total dividend will increase by eight per cent to 1.62p.

Ready for last non-core sale

Analysts expect the imminent sale of Spice's final non-core business, facilities management.

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The 'for sale' sign is hanging over the division, and Spice already classes it as a "discontinued business".

Liberum Capital analysts expect Spice could get 5m to 10m for it. They added the group's underlying trading was "solid", with good cash conversion.

Geoff Allum at Arden Partners said Spice's outlook statement was very positive. "Spice operates in attractive markets, and... has only to sell its facilities business to (get) back to serving its traditional utilities markets.

"The increased offer by Cinven is clearly a positive endorsement, although made at too low a level."

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