Invensys secures £2.7bn refinancing

Debt rescheduling and share issue ends need for sell-offs and puts group on firmer footing
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The Independent Online

Rick Haythornthwaite can for the first time run Invensys as a business, rather than just fight for its survival. The engineering giant was a mess long before Mr Haythornthwaite got there. He was put in place in 2001 to try to make the company work. It couldn't. However, a £2.7bn refinancing announced yesterday puts Invensys on a secure footing at last.

Mr Haythornthwaite, 47, came in with a reputation riding high as a something of a City wonder-boy, after he put up a much-applauded defence against a hostile bid as chief executive of Blue Circle. But the seemingly permanent crisis that is Invensys soon threatened to sink him.

After grappling with debt, the economic downturn, a pension black hole and forced disposals, he could finally sit back yesterday with some breathing space.

The refinancing package announced yesterday was so comprehensive that Invensys was able to call off most of its disposal programme. Appliance Control and Climate Controls, two big and well-regarded businesses that were put up for sale last April as part of a £2bn disposal programme, were taken off the market.

A placing and open offer will raise £450m, while a further £625m will come from a high-yield bond issue and there is a new five-year bank facility of £1.6bn.

This is a major turnaround from the situation the company faced in November, when it admitted that its disposal programme was not going well and that it might need to come up with alternatives. The company had been facing a £515m debt repayment in June and it was not likely to have the money.

Mr Haythornthwaite admits that he cannot be said to have been pursuing anything approaching "a strategy" at Invensys. So far, at least. "When I came in, the company had already been read the last rites. Then things got worse," he says.

"I did find some good businesses but it was a struggle with the financial issues rather than tackling the operational side.... It was not a way to run a business."

Invensys was formed in 1999 by the merger of Siebe and BTR. The dysfunctional resulting company was made up of dozens of unrelated engineering businesses, from manufacturing controls for factory conveyor belts to railway signals. It was led by the pugnacious Allen Yurko.

However, as a capital goods manufacturer, the newly merged company was entirely dependent on the state of the economy. Economic conditions soon faltered, cutting income to the point at which it could not handle its debt pile.

What followed was a painful series of profit warnings and repeated lay-offs of staff. Mr Yurko quit.

Mr Haythornthwaite brought in a considerably more charming approach, but the mode of the company remained one of fire-fighting. Divestments followed. However, by April last year the company was still drowning in debt and plans for further £2bn worth of disposals were announced. Invensys did manage to sell metering systems last year for £390m but this was far less than expected.

By November last year, things were not looking good. The liquidity crisis was spooking customers. Potential buyers of businesses knew that Invensys was desperate and were exploiting the situation. Total liabilities were estimated at £2.3bn. The company admitted it needed a plan B.

Mr Haythornthwaite then toured the City, meeting shareholders and, as he says, "the conversation turned to 'what if'". The outline of a rescue plan that investors would support began to come together.

The rise in Invensys shares in recent days, with a further 12 per cent jump yesterday to 26.5p, was testament to the relief felt in the City. Strong and well-sourced rumours of a rights issue, which have been circulating in the Square Mile for more than two weeks, had very helpfully been pushing up the share price anyway.

The placing announced was at 21.5p ­ a relatively small discount of 9.5 per cent to the closing share price on Wednesday: not bad for a rescue refinancing. The package comes at a cost of £108m, meaning a bonanza for the City advisers involved ­ led by Cazenove, Deutsche Bank and Morgan Stanley.

Mr Haythornthwaite now has five years' money in place. The shares offer is fully under-written. Current trading is not brilliant but is "satisfactory". Appliance Controls and Climate controls are to be retained. "Now, for the first time, we can tackle things from the front foot," he says.

Analysts point out that Invensys does not offer massive earnings growth potential as its businesses were performing reasonably ­ debt was the issue. And Mr Haythornthwaite will admit that the six main businesses he has today do not go together naturally. There is no guarantee that the company will not still be ultimately broken up. But at least Mr Haythornthwaite now has a chance to actually run the company, develop a strategy and ride the economic recovery.

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