Bottom Line: Harmony's cash call creates discord (CORRECTED)


SHAREHOLDERS in Harmony Leisure should turn down the chance of subscribing to the company's pounds 1.8m rights issue. In conjunction with the cash call, new management is proposing to purchase, on behalf of Harmony, their own private property assets.

Harmony owns 18 public houses and has lost steadily increasing sums over the past three years. New management - John Main, chairman, and Lewis Davis, director - want to turn Harmony into a property investment and development company. As a first step Mr Main wants Harmony to buy Kewbrook Investments, of which Mr Main owns 50 per cent, and Hoe Properties, which is wholly owned by Mr Davis. Both have been valued by outside firms.

Both men are taking Harmony shares in payment, which gives some reassurance about their commitment. The response of other shareholders to the cash call is not so comforting. Southend Properties, a quoted company of which Mr Main was chairman until recently, is only taking up rights on one-fifth of its 18 per cent stake. Stanley Lever - former Harmony chairman and 23 per cent stakeholder - is getting out altogether.

Mr Main points to his stewardship of Southend as evidence of his abilities to manage Harmony successfully. But neither he nor his close colleagues have experience in pub management.

Harmony, with pounds 3m of debt, has bank support so all the pounds 1.8m rights cash - underwritten by Guinness Mahon - is available for expansion. Doubtless there are many opportunities at bargain prices, but there is still some way to go before the commercial property market recovers.

The rights shares are being offered at 5p, compared with the market price yesterday of 7.5p, down from 8p. In early 1989 they were trading at 70p. Messrs Main and Davis have 3.5 million share options each, exercisable at 6p some time between 1995 and 2000, which gives obvious motivation. Other investors should treat Harmony with caution.


Southend Property

John Main, the chairman of Harmony Leisure, is also a director of Southend but has never been the property company's chairman, contrary to a report in yesterday's edition.