Mexborough and Swinton Times June 28, 1929

Bakers’ Enterprise
Offer To Buy Bessemer’s.
Important Merger.            
Production to be Concentrated at Kilnhurst.

Details of an important “rationalisation” proposal are contained in an offer which John Baker and Co. (Rotherham), 1920, Ltd., of the Kilnhurst Steel Works, has made to the shareholders of Henry Bessemer and Co. Ltd., of Sheffield. Bakers’ offer to buy out Bessemers, with the intention of transporting Bessemers’ plant and stock, trade and goodwill to the Kilnhurst works.

This is a transaction of considerable magnitude, involving a sum of something like £110,000. In the letter which Mr. George Baker, managing director of John Baker and Co., has addressed to Henry Bessemer and Co. Ltd., the proposal is put forward as a means of meeting the specially difficult conditions in this branch of the steel trade.

Advantage of Rationalisation.

Mr. Baker states:—

“The large number of manufacturers and the small and declining demand for tyres and axles is the cause of the present unsatisfactory state of the industry, and unless some drastic steps are taken, the outlook for the future is most unpromising. Two courses are possible, a price-cutting campaign in the hope of eliminating competition, or au arrangement along the lines of ‘rationalisation.’

” it cannot be disputed that ‘rationalisation,’ properly carried out, must materially cheapen production ; there is also great advantage to be gained by getting larger orders, for you know as well as we do that the railway companies’ practice of splitting their orders between several makers instead of giving the whole of one moderate sized order to one manufacturer, makes nearly all the difference between profit and loss to the manufacturer, and it seems to us that some scheme of ‘rationalisation’ is essential if the trade is to be able to compete in the markets of the world, and make a satisfactory profit from the business.

“In addition, it is necessary for us to consider working together because the largest tyre and axle plants in the country are already proceeding on these lines, and it is quite impossible for small units to compete with the large producing plants they will have.

Although during the last several years you have very much improved your tyre plant, selling prices have all the time been falling, and present-day conditions demand even greater reductions in the cost of manufacture. This you can only obtain by further and possibly more expensive improvements to your plant. Then you are

faced with two difficulties, first, that your space is too restricted for the output of such a plant, and secondly, you could not get sufficient work to warrant the expenditure.

” In view of the great advantages to be gained by running a single plant at large output, we beg to enquire whether you are prepared to merge your interests with ours.

The Offer.

” We have considered what proposals for amalgamation we could make, and we have come to the conclusion that the simplest is for us to offer to purchase from your share-holders a controlling interest in your Company’s shares, the purchase consideration to consist of cash, or, at the option of your shareholders, shares in our Company.”

John Baker and Co., subject to their offer being accepted by 90 per cent. of the ordinary shareholders and 90 per cent, of the preference shareholders, and subject to other conditions, including the retirement of the Bessemer directors, except Sir Walter Preston, who will be transferred to Bakers’ board, offer to purchase Bessemer’s preference shares at 11s. each, with an option to the shareholders to take wholly or in part in lieu of cash eleven Baker preference shares for 20 Bessemer preference shares, or eleven £1 Baker ordinary shares for 14 Bessemer preference shares; and to purchase the ordinary shares at 4s. 6d. a share, with an option to the ordinary shareholders to take wholly or in part in lieu of cash one £1. Baker ordinary for three 6s. 8d. Bessemer ordinaries. The offer is a considerable advance on the present market prices of the two classes of Bessemer shares.

Proposed Change Of Name.

In the event of the purchase taking effect, it is proposed to change the name of John Baker and Co. to “John Baker and Bessemer Ltd.” The preference and ordinary shares offered by John Baker are of £1 each. The offer remains open until July 17th.

Messrs. Baker point out that their profit during the last six years (January 1st, 1923, to December 31st, 1928), including the disastrous year of 1926, after allowing £51,290 for depreciation and providing for all other charges, amounted to £131,526. Bessemer’s have not made a profit over this period, although the work they have taken has been of a similar nature and at similar prices.

Transference To Kilnhurst.

“I see no reason,” says Mr. Baker, “why when made in our Kilnhurst works, the work you take should not yield a profit at least the same rate as we earn on our own output. If we had made this extra tonnage (i.c., Bessemer’s trade) and if it had yielded only the same rate of nett profit as the tonnage we do make, the average net profit on the whole output would have been £34,870 a year after charging depreciation at the corresponding increased rate. This would have been sufficient to pay preference dividend (£10,500) and ordinary dividend at 10 per cent. less tax (224,370).

The “option of shares,” states Mr. Baker, is given in an endeavour to provide for the view some of your shareholders may take that business may improve, and in this connection and in view of the past experience of the two firms it does not seem unreasonable to suggest that we are in the better position to take advantage of any improvement in trade ,and that our shares have a better chance of appreciation and of receiving dividends than yours. The prospect will be vastly improved if your work and ours is done in the same factory, because the establishment charges would be spread over a larger output and the ratio of profit per ton would be much larger. The capacity for output in our factory is quite sufficient to deal with the output of both firms.

Rating Economies.

During 1928 both Bakers’ and Bessemers’ works were heavily handicapped by high overhead charges on small outputs and. Bakers’ calculate, as one instance of economies hoped for, that by closing down one works (Bessemers’) coupled with relief from derating, £5,000 a year will be gained. Although selling prices have fallen during the last few years, economies and improvements in method have so far kept pace with the fall, as is indicated by the fact that Bakers’ profits for 1927 and 1928 averaged £25,201 a year or more than the average for the last six years.

“I have not,” adds Mr. Baker, “overlooked the possibility of further reductions in selling prices, but I would point out that whilst you have no margin for any reductions, there is a substantial margin in the above calculation because of the savings to be effected when all the work is done at Kilnhurst, and when ‘trade improves the prospects of profits are very much better than indicated in the above calculation.”

Bessemers’ Directors Accept.

In a circular to their shareholders, the directors of Henry Bessemer and Co. Ltd. intimate that they have accepted the offer for themselves and recommend the shareholders to do so, for the following reasons :

“Owing to various causes, the capacity of existing plants to supply tyres and axles, this Company’s principal product, is largely in excess of the demand. This shortage of work is inevitably reflected in steadily shrinking prices and increasing losses all round. The difficulty of the situation is now intensified so far as this Company is concerned by recent amalgamations of rival firms and by the failure or absorption of some of the Company’s main customers. In spite of modernisation of plant and reduction in costs of production the cumulative effect of these adverse economic conditions is that the Company finds itself in an isolated position, and even if trade were to , revive the prospect of earning and distributing any dividend is uncertain. Under circumstances such as these the Board consider that it is in the interests of the shareholders to accept the present offer which, whether taken in the shape of cash or shares, provides the opportunity of an immediate re, turn to them.”

Good News for Kilnhurst.

It is considered highly probable that the offer, which is very favourable and even generous, will be accepted by the requisite ninety per cent. of Bessemers’ shareholders, in which case the whole production of the two firms will be concentrated at Kilnhurst, a prospect of great importance to, that locality