Aussie bank builds 20% stake in Forth

The news sent Forth shares surging 152p to 2,090p, valuing the business at 961 million.

House broker Dresdner Kleinwort has raised its price target to 2,600p a share, a level that would value the group at over 1 billion.

Any bid for Forth Ports would mark a financial bonanza for the group's senior directors. A bid pitched at 2,400p a share would value chief executive Charles Hammond's holding of 73,157 shares at 1.7m while finance director Wilson Murray's holding of 153,000 shares would be worth 3.7m.

Babcock & Brown, Australia's second-largest investment bank, has been rumoured to be mulling a bid for Forth Ports for weeks. It bought PD Ports two years ago for 260m, and also owns ports in Australia, the US and Germany. It said it bought a major stake on Friday, taking its holding to 20.4 per cent.

Forth Ports insisted yesterday it would be "business as usual". Hammond said there would be no change of strategy, despite the emergence of the bank, which already owns numerous port assets.

The firm's chief executive said: "We've got a clear strategy for growing value and that's what we're going to be concentrating on."

Hammond expected to meet up with Babcock in the near future "just as we do with all of our other shareholders". It was "for others to assess" if the company was a takeover target, he said.

Mark McVicar at Dresdner Kleinwort said Forth Ports was effectively now "in play".

"We expect other infrastructure funds and port operators to examine the situation and it is likely that an auction will develop," he said.

Major institutional shareholders in Forth Ports will have a critical say should any bid battle erupt. According to the latest annual accounts, they include Threadneedle Asset Management with 11.6 per cent, Schroder Investment Management with 8.7 per cent and F&C Asset Management holding 7.1 per cent. Others include Jupiter ( 6.2 per cent), Legal & General (4.1 per cent) and Standard Life Investments (3.2 per cent).

A spokesman for Babcock said: "Forth Ports has an excellent business with a strong management." But he declined to comment on the company's intentions.

Forth Ports operates six ports on the east coast of Scotland as well as Tilbury on the Thames River. It also has a large area of prime development land after changes to its port operations left land surplus to requirements. This includes 400 acres at Leith.

The company is the last publicly-listed port operator in the UK after a wave of consolidation in the sector over the last three years.

Investors may not easily yield to an offer. Forth Ports' property assets are unique. While property assets are currently out of favour with the stockmarket, the group's long-term plans will attract support.

And it could see major spin-offs at Tilbury. It is the closest port to the site for the 2012 Olympics and is set for a boost in business.

HISTORY

FORTH Ports was created as a port authority in 1967, operating six ports around the Firth of Forth, including Leith and Grangemouth.

It listed on the London Stock Exchange in 1992, following legislation a year earlier allowing port authorities to be transferred to the private sector.

Three years later, Forth extended its reach by acquiring Tilbury port on the River Thames and the Port of Dundee. Its spread of ports north of the Border has also created the firm's other prized asset, its property.

As port work became more efficient, land has been deemed surplus to requirements, leaving it with around 400 acres of land in Leith, which Forth plans to develop into commercial and residential space over 30 years.

Despite strong trading, Forth could lose its independence due to a wave of industry consolidation. Its latest suitor, Babcock & Brown, bought UK-based PD Ports two years ago.