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Opinion This article was first published in December 1998 Following the failure of Viglen Technology shareholders to take executive chairman Alan Sugar's advice, the PC builder looks set to return to the private sphere. Shareholders accounting for 22 per cent of the company accepted the purportedly reluctant takeover bid of Sugar's wholly-owned holding company, Amshold. The offer for the remaining shares -- about 30 per cent of the capital -- is now unconditional. Sugar's gloomy statements about Viglen's future as a PC builder will have done little to reassure shareholders. Last month, Sugar made a mandatory offer for the outstanding shares in Viglen that he didn't already own. But in a curious twist, he urged other shareholders to refuse his offer. The offer, at 24p per share, values Viglen at £29.3 million - about one-third of turnover. Sugar was required by takeover rules to make an offer for the entire share capital of Viglen after raising his stake in the company on 8 October to 41.7 per cent. At 24p per share (the price Sugar paid for his new shares), the company was undervalued, he argues. It was also in Viglen's "best interests to maintain its listing on the London Stock Exchange," he said in a statement. "As such, it is not my wish to take the company private." It looks like Sugar has got himself a bit of a bargain. However, his gloomy statements on Viglen's future have done little to reassure the market. Announcing Viglen's year-end pre-tax profits of £4.4 million on sales of £94.6 million in August, Sugar warned profits would remain "linear" in the foreseeable future. Viglen was for a very brief time the UK's biggest indigenous PC builder. But its attempt to hold the line on PC prices last year misfired badly. The company said it would move away from purely direct PC sales which took a massive hit in the corporate sector last year as market share fell by 50 per cent. Now it appears that Viglen's heart is no longer really in the PC building business - except for the education sector, where 1998 sales in hardware and software were up 14 per cent on the previous year. Sugar said: "We are committed to growing our share of the schools market.' Looking sideways at RM (an overvalued company if ever there was one), an educational push makes sense, especially with the £100 million-plus a year extra budget released by the Government for schools' IT infrastructure Viglen's future also lies in more profitable networking and software services, according to the company - in other words, as a reseller. Viglen's acquisition of Xenon Networks in February this year enabled the company to change tack and this is where Sugar sees future growth and profit margin. This transition may make sense, but does it really need the stock market along for the ride? Maybe enough shareholders will stay on the register for Viglen to retain its London Stock Exchange listing. Remaining shareholders should bail out now. ®

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