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MARKET COMMENT
By
Colchester, Essex -- In theory the interests of shareholders and management should be aligned: both want a rise in the value of the business. Sometimes, though, that isn't the case and managers don't do a very good job. If that happens shareholders have two choices. They can either sell their shares or work to change management. Theory is one thing, practice is another, as the example of Caradon (LSE: CRN) today illustrates. Caradon is a rather poorly performing building materials company. Its share price peaked at 450p in 1994 and has only recently struggled back to 197p after falling as low as 100p two years ago. Against this background it is not surprising that a group of shareholders have put forward proposals to sharpen things up a little. And it is equally unsurprising that the board is doing all it can to reject them. The mechanism for bringing about these changes is an Extraordinary General Meeting called for the 19th of January by Active Value Fund Managers, who own 10% of the company. It has proposed three things: The Board makes the quite reasonable assumption that these proposals amount to a vote of no confidence in it, and urges other shareholders to reject all the motions. In its defence it points to a variety of data since 1998 showing how well it has done. Needless to say these data are quite flattering, but then just about every share looks good when measured from that point because there was a large general correction in the stock market in October 1998. All in all it could be an interesting time for shareholders in the next few weeks. This internal strife will surely prompt some predators to cast on eye over the assets to see if there are any juicy pickings. On a price to earnings ratio of 9.6 and a market capitalisation of £921m it might well generate some interest. Revenue last year was £1.4b, but £479m of net debt, and a vigorous acquisition programme this year, could be the poison pill that puts the vultures off. Just to make life more complicated the company is changing its name to Novar at the end of the year. What should shareholders do? Their own research of course. Where Next? The Caradon discussion board
