Punch and Guido show astonishes shareholders

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Punch Graphix ticks all the right boxes when it comes to investing on Aim. However, the takeover bid now under way is bound to leave a sour taste, whatever the outcome.

The digital printing systems company was spun off less than two years ago from Punch International, a Belgian industrial group that is itself listed on Euronext. It raised more than £20m at 98p a share and Punch International also sold shares to the value of £29m while retaining a 49 per cent stake.

Readers of this column will be familiar with Geoff White, who last week was wrestling with the intractable problems of Patientline. As he reappears this week as chairman of Punch Graphix, investors should be reminded of the answer Napoleon gave when asked if he preferred courageous or brilliant generals. Neither, he said, give me lucky generals.

The lucky general in this battle appears to be Guido Dumarey, chief executive of Punch International and a non-executive on the board of Punch Graphix. His campaign began after the close on the last day of trading before Christmas. Punch International announced that it had bought another 5,000 shares, triggering a mandatory bid. It is offering 128p a share in cash, with no premium to the closing price that day.

The offer document described the performance of Punch Graphix as “unsatisfactory” since the flotation. That might surprise the investors nursing losses on many recent Aim arrivals – shares in Punch Graphix are well ahead of the flotation price and the company has been among the relatively few Aim companies paying a dividend.

Punch International also said it wanted “to acquire majority shareholder control in Punch Graphix so that it may exercise greater cost and management control of its operations”. That appears to include the replacement of the non-executive directors – except Mr Dumarey.

Shareholders were then astonished to find Mr Dumarey referring in an interview with Bloomberg on January 5 to his opposition to “the intended Swedish-Danish acquisition” due to be completed this month. The first mention made by Punch Graphix of such a deal appears in this week’s defence document.

“Punch Graphix was recently in the final stages of acquiring two related companies in Denmark and Sweden for an aggregate maximum consideration of €5.75m (£3.8m), the acquisitions having already been approved by the full board.

“These acquisitions would have provided an extended service and support network for all the group’s customers in Scandinavia,” says the company. “However, following the announcement of the offer Guido Dumarey has indicated to the vendors of these businesses that Punch International opposes the acquisitions, putting the completion of these acquisitions in jeopardy at a potential cost to Punch Graphix of €350,000.”

The defence document has been drawn up by the independent committee of directors, which excludes not only Mr Dumarey, but also Jan Smits, the finance director who used to work for Punch International. It says the company is on course to report an 8.7 per cent rise in turnover for 2006 to €172m, with pre-tax profits 27 per cent higher at €23.5m.

“It is very clear that the offer is no more than an attempt to regain control of Punch Graphix on the cheap and with complete disregard for other shareholders,” says Mr White.

Shareholders have much to ponder – including the lack of allowance in the offer for any payment of a final dividend. As is customary when a vendor is retaining a large stake, Punch International agreed to a lock-in, promising not to sell any shares until the publication of the Punch Graphix results for the year to December 31 2006.

As usual, investors were concerned about the prospect of a large overhang of stock. The last thing they expected was an offer triggered by the purchase of a mere 5,000 shares.

However, the background to the float suggests they should not be so surprised.

Punch International, according to Wim Deblauwe, chief financial officer, had to spin off Punch Graphix in order to raise money to repay debt. He also says they had to come to London because at the time Punch Graphix was bigger than its parent and in Belgium it was impossible to float “a daughter worth more than the mother”.

Since then Punch International’s shares have almost doubled in value on Euronext and another two companies – Punch Technix and Punch Telematix – have been spun off on to Euronext. Punch International has retained majority control in both.

Mr Deblauwe, who insists that Punch Graphix can be run better, maintains that “Guido had very little influence on the board”. He also says that it is entirely up to shareholders whether they accept the offer.

However, as one institutional shareholder says: “This is a very odd situation – and it raises more questions than it answers.”

Mr Dumarey and Punch International, which is advised by KBC Peel Hunt, are making all the running. But they might end up with only a pyrrhic victory.

david.blackwell@ft.com

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