Tomkins at war with SLI over value of takeover

A WAR of words broke out yesterday between the chairman of Tomkins and a leading Scottish fund manager over the proposed takeover of the British engineering giant.

Tomkins chairman David Newlands said despite the opposition of Standard Life Investments and a "very small institutional shareholder", he expected wide support for the 2.9 billion deal.

"The feeling I get from the rest of the shareholders is that we will get a substantial amount of backing," Newlands said.

But David Cumming, head of equities at 2.97 per cent shareholder SLI, denied the claim. "We do not expect the majority of Tomkins shareholders to support a deal whose valuation of the company is, without a shadow of a doubt, too low, and also provides massive incentives to the outgoing management team to deliver returns to private equity rather than to current shareholders," he said.

"In that regard, we note the terms of the compensation arrangements that have been agreed between the senior executives and the consortium. Senior executives will effectively receive full value for outstanding performance share plan awards and will benefit from substantially improved terms, relating to bonus payments and compensation payable on termination of employment. They will also potentially receive significant retention awards."

He added: "We expect that the requirement to gain 75 per cent support for the scheme of arrangement will prove difficult. We remain opposed to the deal on the current terms."

The board's recommendation follows a string of other deals where North American buyers have snapped up UK engineers, lured by reasonable valuations, strong market positions, a weaker pound, and the relative ease of buying into Britain.

The deal is 2010's largest buyout globally, according to Thomson Reuters data, and the largest in Europe since Terra Firma bought EMI Group in May 2007 for $6bn (4bn).

It could mark the end of what was once one of Britain's biggest industrial groups, dubbed the "buns to guns" conglomerate in its 1990s heyday because it owned both food group Rank Hovis McDougall and .357 Magnum maker Smith & Wesson.

Tomkins said a trio of investors owning more than 9 per cent had formally backed the $4.5bn offer from Onex, Canada's largest private equity firm, and the C$127bn Canada Pension Plan, the country's second-biggest pension fund.

It comes eight days after Tomkins revealed takeover talks and despite the objections of one top-ten shareholder that the firm was being sold too cheaply.

Another top-ten shareholder said the offer was a reasonable price for a "bog-standard manufacturer" whose chief executive, Jim Nicol, had already wrung out possible cost cuts.

"It feels fair and it might be more than fair if the economic environment gets worse," the investor said. Collins Stewart analyst Mark Wilson said the bid did not reflect "any kind of premium for the fair value" of Tomkins but was likely to succeed unless a "very unlikely" counterbid emerged.

Tomkins said Pinafore - Onex and CPP's acquisition vehicle - had received irrevocable undertakings from Schroders and JP Morgan Asset Management to vote in favour of the deal and it said the recommendation reflected its negative forecast for the second half and that its shares were trading at 230p before news of the approach.

"If you look at the economic indicators, it's unlikely the second half will be as a strong as the first," Newlands said.

Asked if Onex and CPP were likely to break up Tomkins, whose stable includes Gates, the US maker of belts and hoses for cars and machines, Newlands said the consortium was very supportive of the management team.

Onex and CPP will contribute $1.1bn each of equity funding and have raised $3bn of debt finance from Bank of America Merrill Lynch, Citigroup, Barclays Capital, RBC and UBS.