Board Bust-Up As Tool Giants Abort £300m Deal

Two of the UK's biggest tool and equipment hire groups have abandoned secret talks about a £300m merger after a boardroom bust-up prompted two directors to quit.

Sky News has learnt that HSS and Speedy Hire (LSE: SDY.L - news) had been in preliminary discussions about a tie-up until last month.

A deal is understood to have had the backing of a number of the largest shareholders in both companies, which have been hit by a string of profit warnings during the course of this year.

However, two Speedy Hire non-executive directors, Chris Masters and James Morley, are said to have opposed the merger, triggering their exit from the company's board.

Insiders said on Thursday that Speedy Hire was now lining up Bob Contreras, the chief executive of van rental group Northgate (Other OTC: NGTEF - news) , to replace one of the departed directors.

A second new director is also in the process of being recruited.

Mr Masters is understood to have been pushing for the ousting of Speedy Hire's chairman, Jan Astrand, a move which angered boardroom colleagues and some of the company's leading investors.

Sources said they were hopeful that the resolution of boardroom tensions would lead to a revival of the merger discussions, which could generate substantial cost savings.

HSS floated on the stock market earlier this year, with the shares being sold for 210p.

However, a number of profit alerts and the exit of its chief executive has sent its value spiralling downward, despite the fact that it should demonstrate respectable growth figures during this financial year.

On Thursday its shares, the majority of which continue to be held by Exponent Private Equity, were trading at roughly 51p, giving it a market value of just £80m.

Speedy Hire has seen its shares lose more than half their value over the last 12 months, and it now has a market capitalisation of just over £180m.

It (Other OTC: ITGL - news) has blamed its woes on a range of issues, including a lack of equipment, disruption caused by poor IT systems and a mistaken focus on larger clients at the expense of smaller ones.

Both companies specialise in leasing tools and equipment such as generators, pumps and concrete mixers, and analysts believe there is considerable logic in combining them.

Rothschild and Investec are understood to have been advising Speedy Hire on the early-stage merger talks, with HSBC advising HSS.

Both HSS and Speedy Hire declined to comment.