Opinion: This month two deals loom large, but for very different reasons. The now get-up-and-go Eircom wants to regain a listing for its shares. In contrast, jaded radiator company Barlo wants its management to take it out of the public arena, or more aptly, out of the rut; ironically from its own doings, writes Bill Murdoch.

The Eircom re-listing will happen. The existing proposed Barlo deal looks like a non-runner and rightly so.

The Eircom investors who took a chance, or more realistically saw the opportunities, will now reap a rich harvest (well documented in this newspaper). The only strains on that issue are the very heavy weighting in favour of institutions, and the high threshold of €40,000 for private investors.

So smaller investors will not have the opportunity to participate in the expected yield of about 6 per cent. This issue, however, is a welcome boost for the Irish Stock Exchange and mostly makes up for the delisting of a score of Mickey Mouse companies over the past few years.

Barlo is a decidedly different fish. Looking at its appalling record, it hardly deserves a public listing for its shares. Those downtrodden outside shareholders must be tempted to accept that MBO offer of 40 cents per share with alacrity. After all, haven't the independent directors, advised by AIB Corporate Finance, recommended acceptance?

It is difficult, however, to reconcile the independent directors' view of the industry with those of Melgan, the vehicle being used by Mr Tony Mullins, to effect the takeover. In short, these directors are taking a distinctly negative view, while Melgan appears to be positive.

What is surprising is that the independent directors, and AIB Corporate Finance, do not point to one positive element for the industry. They note the cyclical nature of the industry, and the difficult economic conditions in "certain markets for Barlo, such as Germany, with the implications for Barlo trading".

In contrast, Mr Mullins says if the offer is completed he will continue the development of the radiator and clear sheet plastics divisions of Barlo.

Of course, buyers and sellers differ. Otherwise there would be no deals. But why are the independent directors pushing so strongly for a sale? More important, why not have even one positive possibility for the industry? And it is worth noting that the latest interim results showed continued improvement with operating profit (before goodwill, interest and exceptionals) up to €8.6 million from €8.55 million.

While the 40 cents offer is well above the indicative offer of 30 cents made by Mr Mullins last July, it should be resisted. Analysts have differed in their valuations ranging from 40 cents or above, to 60 cents.

The operating profit must now be running close to 2001's level when the shares were around 70 cents. But then the company was paying a dividend. It stopped paying dividends in 2002, a year which saw a net loss of €10.8 million, but that was after exceptional charges of €12.7 million.

The company could have made itself a little more attractive had it returned to dividend payments. Not so. Instead it decided not to because of its very high level of debt amounting to €125 million, hovering well above the market capitalisation of some €70 million.

It has a strong operating cash flow, however - it amounted to €8.3 million in the first half to September 30th 2003 - and it could have returned to dividend payments.

A return to 2001's level, for example, would still have been covered 1.5 times by available earnings. That would provide shareholders with a yield of 6.8 per cent, or better than the Eircom yield!

Maybe that might have been somewhat imprudent but wouldn't that prospect, or even a lower payout, have put a better base to the share price?

Incidentally while shareholders received no dividends for 2002-03, Mr Mullins's total remuneration rose to €614,000 from €481,000. It has to be asked, is that equitable?

The Barlo shareholders have a number of dates to watch out for. The first is March 12th. If a competing offer of 44 cents or more is received by that date, shareholders representing 12.4 per cent of the equity will be required to accept that offer (they are part of the 36.4 per cent of the irrevocables held by Melgan), unless a competing offer is made by Mr Mullins. The second date is March 17th (3 p.m. on St Patrick's Day!) for first acceptances. And the third is March 24th when an important e.g.m. will be asked to approve the sale of the Athlone Group and other assets to Hasik, a company in which Mr James McGee, Mr Enda Cunningham and Mr Jackie Browne are shareholders) for €67.8 million.

Very limited information is given about this deal. The only figure supplied is the net asset value of the businesses which amounts to €56.15 million. That means that Barlo is getting a hefty premium of almost €11.65 million on the net assets.

If the offer document wanted to be informative it should have given a profit record of the businesses it is selling together with a pro-forma balance sheet of Barlo, once these businesses have been stripped out. Without that, it is impossible to make a judgment.

Thankfully for the Barlo shareholders, it is the independent shareholders who have to approve this deal. That means Melgan, the Athlone promoters and concerted parties are excluded from voting.

However, a simple majority (more than 50 per cent) is all that is needed to pass this resolution. Mr Dermot Desmond has a strong hand with the 14 per cent plus he has accumulated without disclosing his intentions.

If that block of shares proves to be hostile, it will be even more difficult for Mr Mullins to get the 80 per cent acceptances needed to pave the way for his proposed MBO.