Case for consolidation is undimmed

WHEN Tim Cobbold, De La Rue’s chief executive, joined the company last year, he did so in highly inauspicious circumstances.

The firm was defending itself against the advances of French suitor Oberthur – but this was no ordinary takeover battle.

Having seen Cadbury fall into the arms of America’s Kraft, the British public were up in arms at the prospect of De La Rue going the same way. The Yanks making our chocolate bars? That was bad. But the French printing our bank notes? Quelle horreur!

By and large, investors didn’t share the public’s concern.

Still reeling from the loss of their biggest customer, the Indian government, many thought De La Rue’s management were unwise to turn their nose up at a 905p-a-share offer. Analysts at Merrill Lynch said the firm’s share price would fall to 620p should Oberthur walk away, a view shared by Olivetree Securities. In the end, Cobbold’s decision to keep up the defence and rebuild the company paid off. Even without India, forward business for the next 12 moths is up 14 per cent and new enquiries are holding up well.

Yesterday, the stock closed at 885p, well above the 835p it traded at even when Oberthur was waiting in the wings. Yesterday, analysts at UBS predicted the price could hit £12 if the French firm comes back again.

Although sources familiar with Oberthur’s thinking say it is unlikely to go that high (see above), the case for consolidation in the bank note printing market remains undimmed. Already a mature market, the demand for bank notes is sure to decrease.

So we’re watching Oberthur’s disposal of part of its credit card business with great interest. The firm might say there’s no chance of a second, higher offer. We wouldn’t bank on it.