Spaniards tipped to take a bite out of Devro as takeover talk grows

DEVRO, the Scottish sausage skin and food products maker, is likely to attract attention in the City today after analysts said it was being eyed for a possible takeover.

The Moodiesburn-based firm, which is one of Scotland's 100 largest companies with a market value of about 200 million, is thought to be in the sights of larger Spanish peer Viscofan. Gordon Culfeather, a Bell Lawrie analyst, believes the Scots firm will struggle to sustain its growth without making further acquisitions of its own.

In November, Devro - maker of 80 per cent of the skins used by UK sausage manufacturers - warned that foreign exchange costs were eating into group results. It also surprised the City by revealing that chief executive Graeme Alexander was stepping down.

Culfeather said: "Viscofan, Devro's largest competitor, has been on the acquisition trail this year and there are meaningful synergies between the business reflecting the possibility of cost savings and rationalisation within the European market while achieving market dominance."

He pointed out that two shareholders owned some 22 per cent of Devro, with one of them holding a parallel stake in Viscofan, which is listed on the Madrid Stock Exchange and has a market value of close to 480m.

Culfeather added: "While it is conjecture on our part, an acquisition of Devro or break-up would be a neat exit for both these shareholders, particularly given our expected scenario of flat earnings over the next 18 months."

According to City forecasts, Devro is likely to post 2006 pre-tax profits of around 17m, down from 25.8m the year before. The company is in a financial close period and was unavailable for comment.

In November, it said the effects of foreign exchange were likely to have a 750,000 impact in the second half, with the full-year impact likely to come in at about 2m.