Founders of Prism Rail in pounds 27m shares bonanza

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The Independent Online
Seven founder investors in Prism Rail, the company set up to bid for passenger train franchises, were sitting on a shares bonanza worth pounds 27m last night after launching a rights issue to fund their latest successful deal.

The investors, six of whom run private bus companies, already owned 5 million of Prism's 13 million shares valued at pounds 20m. Yesterday they were awarded another 1.83 million shares worth pounds 7.4m after the company took over its latest two franchises, South Wales and West Railway and Cardiff Railway.

Under a complex deal agreed at the time Prism gained its stock market listing on the Alternative Investment Market in May, the founders received 6.52 million deferred shares in return for agreeing to fund the cost of Prism tendering for rail franchises up to a maximum of pounds 2.7m.

The subscription agreement ensures that the founder investors receive deferred shares equivalent to 25 per cent of any new ordinary shares issued. The deferred shares are convertible into ordinary shares on a one-for- one basis each time a franchise is awarded and fresh equity is raised to fund its operations.

In addition to the new shares awarded yesterday, the seven founders also shared in a payment of just under pounds 900,000 for waiving their entitlement to take up shares in the rights issue.

Prism is raising pounds 12.4m by way of an 11 for 26 rights issue at 240p compared with last night's closing price of 405p. Even if the shares do fall to their theoretical ex-rights price after the new issue, the founders' shareholding will still be worth pounds 22.1m.

The founders are Godfrey Burley, who runs East Yorkshire Motor Services Group, and his partner in the business Peter Shipp; Giles Fearnley, who runs Blazefield Buses, and his partner Stuart Wilde; Bob Howells, chairman of Lynton, and Len Wright of Q Drive, which are both also bus companies. The seventh founder is Kenneth Irvine.

In addition to the two South Wales franchises, Prism also operates the London-Tilbury-Southend line and has been shortlisted for a further four franchises. These are Cross Country Trains, West Anglia Great Northern Railway, Merseyrail Electrics and Anglia Railways.

The company is already the biggest privatised rail operator with three franchises under its belt and, depending on the success of its remaining tenders, could end up with at least a fifth of all the former BR franchises sold off by the Government.

Prism is projecting a profit of pounds 8m in the year to the end of March 1998, the first full-year for the enlarged group, and said its net assets, on a pro forma basis, were pounds 21.4m.

A spokesman said that the large share rewards the seven founders had received reflected the risk they had taken by investing their own money and time in bidding for rail franchises without any guarantee that they would win a single one.

South Wales and West Railway operates short train routes on the former Western, Southern and London Midland regions of BR and will receive a subsidy of pounds 70.9m next year. Cardiff Railway operates in the valleys north of Cardiff and will receive a subsidy of pounds 19.9m net year.

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