Morgan Advanced Materials rejects Vesuvius approach

Morgan Advanced Materials, once Morgan Crucible, is a materials technology company with a big reputation. It certainly attracted the attention of Vesuvius, the molten metal engineer which has just confirmed it had approached Morgan about a possible bid.

Vesuvius, part of Cookson until the electronics division was hived off in 2012, made a preliminary proposal for an all-share merger on 27 October, said Morgan. It was clearly unimpressed and no talks took place. Vesuvius is "disappointed," but walked away.

Morgan reckoned the proposal "fundamentally undervalued Morgan Advanced Materials's existing business and its prospects." Management also decided a tie-up would have diluted Morgan shareholders' exposure to "attractive, diverse and secular growth markets and world-leading technology and would expose Morgan Advanced Materials shareholders to Vesuvius's lower margin businesses serving the iron and steel sectors."

Given Morgan's team "unanimously" rejected the offer and that Vesuvius has lost interest, a deal looks unlikely any time soon. It does, however, reinforce the attractiveness of Morgan as a possible target further down the line.

A trading update issued last month was also reassuring. It's winning new orders and reckons second-half revenue should grow by 3% on a continuing and constant currency basis. And 2015 should get the full benefit of July's acquisition of Porextherm, shutting the plant in Swansea and further self-help. And, barring any further downturn in Europe where Morgan makes a third of sales, currencies should become a tailwind, too.

Morgan has already improved margins, but the departure of highly-regarded chief executive Mark Robertshaw, announced in September, is a real loss. He'll leave in the New Year once a replacement is found.

Investec Securities expects adjusted pre-tax profit of £92.5 million in 2014, giving adjusted EPS of 21.6p. At 304p, Morgan trades on a forward price/earnings (PE) ratio of 14, dropping to 12.4 for 2015.

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