Time the City looked for value

Ready for a brain-teaser? Then try this conundrum for size. Six months ago, Blue Circle shares were worth less than 300p. So said the City investors who showed no interest in stocking up even though by common consent the shares were a snip.

Then, last week, those same fund managers who demurred at paying 300p for the shares, deigned to reject the chance to sell them for 450p. In the meantime something dramatic had happened to the outlook for the global cement industry, presumably. Why else would fund managers whose raison d'être is the creation of wealth turn down such a straightforward opportunity to bank a 50 per cent profit?

Something has changed, of course, but it has nothing much to do with the fundamental value of Blue Circle. What happened was the intervention of Lafarge, the French aggregates group which in February announced its willingness to pay first 420p for Blue Circle shares and then last month upped its bid to 450p. Last week, much to the consternation of Bertrand Collomb, Lafarge's chief executive, more than 50 per cent of Blue Circle's largely institutional investors declined their kind offer.

Now there is a case for congratulating Blue Circle's investors, particularly Schröders, whose decision to go public with its rejection of Lafarge's bid undoubtedly influenced the handful of institutions which followed suit. Clearly, Mr Collomb's opportunistic conclusion that Blue Circle's exasperated investors would accept such a modest revision of his original bid was treated with deserving contempt. One can only hope that Rick "Houdini" Haythornthwaite, Blue Circle's chief executive, will justify their faith.

But if Mr Haythornthwaite is confused by the attitude of his investors then he has every right to be. The few sweeteners offered in Blue Circle's defence document hardly justify such a reversal of sentiment. Why is a stock which six months ago wasn't worth 300p now a good bet at 450p, just on the say-so of a Frenchman? In fact, the fate of Blue Circle has exposed the City's lack of confidence. Like just about every other old economy stock, even after their recent revival, Blue Circle was ludicrously undervalued and everybody knew it. Unfortunately, none of the City's callow fund managers had the courage to put their money where their mouth was by piling into the shares. Instead, it took a French lesson from Lafarge to convince the market that even 450p is too cheap.

A similar thing is going on at Wickes, the DIY retailer which has received a 375p-a-share bid from Focus Do It All, its private rival which is backed by venture capitalists. Too cheap, the cry has gone up, and the stock is now trading at more than 400p. But if that is the case, why was nobody stocking up prior to Focus's approach, when the shares were going for less than 300p?

Rather than patting itself on the back for seeing off Mr Collomb, the City should be asking itself why he came so close to bagging such a steal. And rather than waiting for foreigners and venture capitalists to tell them that stocks like Blue Circle and Wickes are under-valued, institutional investors should do the job themselves and start driving these shares up, through the simple act of buying them.