Management have bungled defence

IS this the most bungled takeover defence in corporate history? First, De La Rue managed to irk shareholders by keeping Oberthur’s approach under its hat for a whole month. Now management refuses to say whether it has been excluded from bidding for a key banknote printing contract from the Indian government. We think that De La Rue’s silence speaks volumes.

According to Oberthur, there was recently a tender for 16,000 tonnes of Indian banknote printing, equivalent to the entirety of De La Rue’s current contract. If the French suitor is right, the situation is far worse than shareholders thought. Analysts at UBS were predicting De La Rue would lose 8,000 tonnes, or around half, of the contract in the future.

If De La Rue has lost out on the Reserve Bank of India (RBI) deal, which won’t be re-tendered for another 12-18 months, Oberthur’s 905p indicative offer looks increasingly attractive.?In fact, it is the only thing propping up the stock, which closed at 836p yesterday.

Analysts at Olivetree Securities reckon there is some 200p downside should Oberthur walk away, while Merrill Lynch sees the stock falling to 620p. Either way, it won’t be pretty.

De La Rue claims it is winning new business at the same rate as last year. But there is no way that new wins can fill the gaping hole left behind by the RBI contract.

Oberthur’s overtures might be supporting the stock for now, but the French firm has some talking of its own to do. It is still unclear how it could fund a bid; if it were to use debt, the combined firm would be painfully geared, with net debt of around five times earnings.

Only the most daredevil shareholders will wait around to see if Oberthur is for real.