No Pain, No Gain: Even a small takeover battle can be big on drama

By Derek Pain

Some acrimonious and often intriguing takeover confrontations occur on the edge of the stock market, with hardly anybody - with the exception of the participants - taking the slightest notice. Such a battle, which has already produced the emotions and intensity associated with many a multi-million-pound confrontation, is near to reaching a conclusion. At stake is the continuing independence of an old ferry company.

Some acrimonious and often intriguing takeover confrontations occur on the edge of the stock market, with hardly anybody - with the exception of the participants - taking the slightest notice. Such a battle, which has already produced the emotions and intensity associated with many a multi-million-pound confrontation, is near to reaching a conclusion. At stake is the continuing independence of an old ferry company.

It may not be a clash of the titans but both attacker and defender are throwbacks to an age when Britain enjoyed a powerful influence in much of the world. The bidder is Falkland Islands Holdings, established by Royal Charter in 1851. On the receiving end of its £10m cash-or-shares shot is the Portsmouth Harbour Ferry Company, which can trace its lineage to 1883.

FIH, which spends its time providing a variety of services to the Falkland Islands, launched its bid in August. The Portsmouth board, headed by Michael Wright, quickly rejected its overtures. But FIH refused to be denied. It has since increased its offer, which now stands at about £44 per Portsmouth share. The ferry company's shares are unlisted. On the JP Jenkins matched bargains market they were last traded at £37.50.

Already, FIH has 30 per cent of its target's capital. It picked up about 21 per cent from a small group of City investors. They included Gavin Casey, the former Stock Exchange chief. Other shares were subsequently acquired and, at the last count, Portsmouth shareholders with some three per cent had accepted. The offer closes on Monday but could be extended.

FIH's shares have had an eventful time. They have been around for quite a few years, appearing on the Alternative Investment Market early last year. Since then they have climbed from 185p to 722.5p. Current price is about 630p. The upsurge does not reflect the group's trading performance. Indeed, in its last year, profits actually fell from just over £1m to £847,000. But any shortfall on the earnings front has been more than offset by other developments. FIH has moved into the orbit of Dawnay Day, the aggressive City investment group, and has attracted two significant shareholders, Sir Harry Solomon, of Hillsdown Holdings fame, and well-known fund manager turned private investor Lennie Licht. David Hudd, who has headed a variety of companies, is chairman.

In addition, it has successfully floated Falkland Oil and Gas, an explorer searching in and around the South Atlantic islands, retaining a 23 per cent stake. A Falkland-based mineral exploration company, in which FIH has 21.9 per cent, is due to float on the stock market.

Clearly, the old Falkland trading company is on something of a roll. Yet it feels it can no longer rely on the economy of its native islands. Although its operations are widely spread, ranging from shipping and engineering to the Upland Goose Hotel, any growth is restricted by the narrowness of the Falkland economy. Hence, planned diversification in the shape, initially, of the Portsmouth company, running a ferry across Portsmouth Harbour from Gosport to Portsea and embracing a travel agency.

Mr Hudd believes the two companies are compatible. Portsmouth operates a solid business, which benefits the local community. "We do the same in the Falklands," he said. But on the south coast, the Falkland assault has run into considerable opposition. A shareholder of my acquaintance, however, is delighted with the offer which, even if below the £50 or so it touched when FIH shares were hitting new highs, is still well above past levels. But Mr Wright and his board believe it "significantly undervalues" the company, which produced profits of £775,000 (down from £915,000) last time. One influence muddying the Portsmouth water is the Government's decision to drop proposals for a tunnel that would have represented a serious challenge to the ferry company's operations. Without an underground rival, it should, I imagine, sail serenely on.

An indefinable influence is Portsmouth's long association with families steeped in the tradition of the old naval port. When the ferry company was launched, the local business community rushed to provide the necessary seed corn. Many of the 240 shareholders now controlling the company are direct descendants of those early merchants and shopkeepers. They may, therefore, feel a historic attachment to their shares which, after all, offer them a reasonable dividend income.

In the headline-grabbing takeovers there is no room for such a soft-hearted, sentimental approach. The outcome invariably depends on price. But I wonder whether the ferry company's long-standing involvement with many of its shareholders will allow it to escape the clutches of the experienced Mr Hudd and his team. We should have an idea which way the battle of Portsmouth is going on Monday.