South Western Services buy-out ‘close’

AN IAWS Co-op takeover of South Western Services in Bandon is said to be tantalisingly close after months of uncertainty over the deal.

But some sources suggest that the deal could be undermined by the IAWS swoop on NTR shares in recent weeks which saw IAWS spend close to €130 million getting a substantial minority stake in the business.

That process has further to go, it is understood.

Some senior SWS executives are concerned the huge outlay on NTR in recent weeks has undermined IAWS’s ability to fund a merged entity.

The markets are still intrigued and fears have been expressed that Philip Lynch of IAWS has spent too much of co-op stakeholders’ money on the deal.

The speculation is that Mr Lynch plans the merger of the energy and waste management ends of NTR and SWS.

But Mr Lynch insists NTR is an investment play that will pay off in the years ahead.

Some SWS top executives are unhappy over NTR and fear their interests would be damaged if the merger was to go ahead for that reason.

But the media focus on NTR and Lynch’s plans for it has been misguided, some analysts believe.

SWS’s future will be decided, however, not by the management of the group, but by its key shareholders.

Dairygold owns 55% of SWS and recently appointed its chairman and financial director to the board of SWS, increasing speculation about how the North Cork dairy group will view the SWS deal with IAWS Co-op.

Dairygold and the other SWS stakeholders met in Cork yesterday, fuelling speculation that the IAWS deal was top of the agenda.

That has been denied by a Dairygold spokesman.

He pointed out that with the new Dairygold board members present they would need time to get up to speed on what has been happening.

In 2003, SWS made profits before tax of €3.2m.

That will climb to €4.2m for 2004.

The power generation business could add up to €6m to the profit base within a few years.

A price of ten times future earnings could theoretically put a value of €100m on SWS.

However, sources suggest that figure was totally unrealistic.

Given the inter-relationship of all of the players in this deal, one analyst said if the deal makes financial sense price will not be the stumbling block.

Due diligence delayed the SWS deal for several months.

It highlighted a 40% claim by senior management to the future earnings of the financial services end of the SWS business.

Since then that claim has been cut to 25%, clearing up that hiccup.

The other SWS co-op stakeholders are the four West Cork players, including Drinagh, Barryroe, Lisavaird and Bandon.