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USG People Seek To Protect Ownership

Dutch staffing company USG People's proposed strategy to ward off unwanted buyers with a poison pill is risky but could work, reports Foo Yun Chee. Reuters. Fearful that an opportunistic buyer may scoop up its shares, which have halved in value since the start of the year, USG People, among the top six jobs company in the world, wants to set up a foundation charged with protecting the company, to which it can issue preference shares. The foundation could therefore gain enough voting power to stall a hostile bid.

This kind of practice is not unusual in the Netherlands and Dutch companies have used it twice in recent years to keep activist investors at bay, but both cases went to court, highlighting the legal risks involved in such a move. USG says there is no immediate reason for using preference shares but stresses the measure can strengthen its negotiating power in the event of an unwanted build-up of a controlling stake by a shareholder and the absence of an attractive public offer.

USG shares were 0.1% off at 8.96, 52% lower in the year to date and giving it a market capitalisation of 583 million. This compared with a 38.4% drop in world number one staffing company Adecco's share price and second-ranked Randstad's 47% fall. Staffing stocks have tumbled since mid-2007 after companies issued gloomy outlooks. 'In principle, it will not prevent a takeover but it will give the company more time to negotiate for a better deal. It's a delaying tactic, it could work,' said analyst Herman Huizinga at Keijser Capital. 'They win time and they can look to other possibilities to prevent a takeover,' he said.

USG's strength in the Benelux, its expanding presence in Germany and focus on the high-margin professional placement market make it an attractive target for its larger rivals. Adecco, with its war chest of 1.4 billion, is on the acquisition trail after dropping its bid for Michael Page . U.S. rival Manpower has also said it is on the lookout for possible buys. 'In the staffing market, it's all about scale. If you buy USG, you have one of the biggest players in the Benelux,' said Frank van Wijk, analyst at SNS Securities. 'It would be nice to have a strong foothold in Randstad's own highly profitable home market.'

LEGAL RISKS Still, there are risks in USG's preference shares strategy, as evidenced by two Dutch companies which have taken the same route. Industrial group Stork, which issued preferential shares to a foundation last year to ward off a break-up push from activist shareholders, had to revoke the shares later after a court ruling. Earlier this year, semiconductor equipment maker ASM International issued preference shares to a foundation, aiming to thwart investors seeking to sack its chief executive. A court has told both parties to resolve their differences. Some shareholders said USG should let investors decide about any possible acquisition bid, whatever the price. 'This is not in the best interests of shareholders. Shareholders are capable of making their own decisions. I don't wish the company to make a decision for me,' said SNS Asset Management fund manager Corne van Zeijl. 'This will deter prospective investors. It will probably reduce any prospective acquirer's interest so it's not in the interest of shareholders. If there is a chance of this happening, it will be quite slim,' he said. Van Zeijl, who holds USG shares, is leaning towards voting against management's proposal at the EGM on Dec. 23. USG's proposed tactic could even cap any gains in its share price, said a fund manager who holds USG shares and declined to be named. 'There will be more value in the shares if there are no deterrents against buying the company,' he said. USG's tactic may even backfire on it, said Robeco fund manager Stefan Bergakker, who holds shares in Randstad and British recruiter Hays, and who does not currently plan to buy USG shares. 'In several cases that we have seen, management was succesful in holding off an unfriendly bid but, in the end, the share price fell below the bid price. So shareholders would have been better accepting the bid,' he said. USG trades at 8.5 times forecast 2009 earnings, compared to Adecco's 9.2 times, Randstad's 6.3 times and Manpower's 10.9 times, according to Reuters Data. Report by Foo Yun Chee.


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