View from City Road: Perils of the backdoor takeover of Trafalgar

One year on from the takeover by Hongkong Land, the story at Trafalgar House has a familiar ring to it. Hongkong Land has installed its own management, signalled which businesses and assets it wants to sell and warned of yet more job losses to come.

Lest unexpected problems or a slow economic recovery undermine its efforts, the company has adopted the traditional acquirer's practice of providing against everything in sight.

The mistake, as astute readers will have noticed, is that Hongkong Land did not acquire Trafalgar; it has a 25 per cent stake and says it has no intention of launching a full bid. But the events since its tender offer a year ago confirm that investors were right to suspect it of seeking power without responsibility.

Hongkong Land prefers to present itself as the saviour that rescued Trafalgar from its Waterloo. It points out that, without its support, Trafalgar could not have arranged February's pounds 204.5m rights issue, let alone the extra pounds 404m needed to repair the damage caused by the write-offs.

If even half the provisions were necessary - and few can quibble over downgrading assets last valued in 1989 - Trafalgar would now be at the mercy of its bankers and its shares worth a lot less than yesterday's 77.5p.

But other shareholders, rather than Hongkong Land, provided three-quarters of the funds to get the group back on its feet. Nevertheless, as yesterday demonstrated again, Hongkong Land calls all the shots.

At least it is prepared to play a long game - which it will have to since prospects look grim enough, and will continue so until the international engineering and construction market starts to improve. That will not be until 1995 at the earliest.

If Trafalgar returns to the pounds 215m profits it earned in the glory days of 1989 - and that will take some doing - the rewards will be divided between almost three times the number of shares. That suggests earnings of 10p rather than the 34.3p reported at that time.

Those who believe in this possibility could find the ordinary shares attractive. Realists will prefer to snap up the guaranteed 7.5 per cent yield on the convertible preference shares and leave Hongkong Land to it.