Ilion shares hit by third profit scare

Takeover rumours escalate as broker predicts £800,000 profit.

Takeover talk surrounding Ilion went into overdrive last week after the networking distributor issued its third consecutive profit warning that stopped its rising share price in its tracks.

Ilion shares saw a flurry of trading activity as they rose on 23 November from a constant of about 50p to a high of 72.5p on 25 November. According to sources, the rise was due to a takeover approach by a South African organisation.

Shares then dropped to 51.5p on 27 November, the day after Ilion revealed pre-tax profit would be 'materially below expectations' for the current year ending 31 December.

A representative at Beeson Gregory, Ilion's broker, confirmed a markdown of the distributor's profits for the year from £5 million to £800,000.

Wayne Channon, chairman and chief executive of Ilion, distanced the company from the idea that the shares had risen due to an imminent takeover, but added: 'At the moment, a sale is not an option because the shares are so low.'

He insisted he was not forced to issue a warning - Ilion's third in 12 months - to dampen the rise in shares: 'The reason we did it now was that we have an estimation of what the City was expecting.'

An industry source said: 'The Stock Exchange monitors any ir-regular movement on the market and certainly would have asked the company some very pointed questions - hence the profit warning.'

Channon said Ilion's sales would be lower than expected due to a lack of technology investment in the City. 'We can only respond to what the market is doing,' he said.

Ilion issued its first profit warning in November 1997, blaming financial problems at rival distributor Azlan and a slump in UK margins.

In May this year, it issued a second warning, citing market volatility and causing Beeson Gregory to adjust pre-tax profit expectations from £8 million to between £4.5 million and £7 million for the year.

In a separate move, vendor ACC has dumped Ilion, just one week after the networking distributor lost its franchise with Novell.

Steve Dye, sales manager for channels at Newbridge Networks, which still handles former affiliate ACC's channel, said: 'We feel that we get a better return on investment with our other partners.'

Channon said the ACC franchise had been inherited with the purchase of Top Log in 1996. He added: 'It was not a bolt out of the blue. We are asked by vendors all the time whether we can commit to their products.

Some we can commit to and some we can't.'