GEC drops offer after closer look at Ferranti: Hopes of saving electronics group crushed as receivers move in

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The Independent Online
FERRANTI, the defence electronics company employing 3,000 people in Britain, asked its banks to appoint receivers yesterday after Lord Weinstock's General Electric Company withdrew its 1p-a-share bid.

The historic British company is expected to be sold off piecemeal, with GEC likely to cherry-pick the best bits of Ferranti's military businesses.

GEC's offer was conditional on its 'due diligence' inquiry into Ferranti. The company obviously uncovered something it did not like in the books, but declined to be more specific.

David Newlands, GEC's finance director, said: 'It's very sad. In making our bid we wanted to preserve Ferranti's name and goodwill. If the receiver feels he wants to talk to us, then we will be happy to talk to him.'

News of its withdrawal came as GEC announced a rise in half-year pre-tax profits from pounds 356m to pounds 360m, but warned analysts that their profit forecasts for the full year were too high.

Last night John Talbot and Murdoch McKillop of Arthur Andersen were appointed as joint administrative receivers of Ferranti International and certain of its subsidiaries.

As revealed in the Independent last week, Ferranti's 15 banks asked Arthur Andersen to draw up a contingency plan should the offer fail. The banks, which are owed pounds 110m, include National Westminster, Barclays, UBS and ABN. A further pounds 40m is owed to other creditors.

GEC had always appeared lukewarm on the deal, saying virtually nothing about it publicly. The Independent learnt that GEC was encouraged to make a token offer - a bid that Ferranti's chairman, Eugene Anderson, described as guaranteed to irritate - by the Ministry of Defence, which did not want bits of the company falling into foreign hands.

During his three years in the job, Mr Anderson said he had approached every suitable company about saving Ferranti, but GEC was the only one to make a bid, offering pounds 10.1m for the ordinary shares and pounds 1.29m for the preference shares.

GEC's move came ahead of a vote due to take place next week on the offer. It would have required acceptances from 90 per cent of shareholders. John Katz, of the Ferranti shareholders' action group, mounted a vigorous opposition campaign. Mr Katz wanted Ferranti placed in administration. He was not available for comment.

Tressan MacCarthy, analyst at Panmure Gordon, said: 'Obviously GEC will buy the bits it wants out of receivership. To be honest, they were going to be cutting it fine to get the 90 per cent shareholder acceptance they wanted with Mr Katz up in arms.'

By yesterday valid acceptances had been received for 55.8 million ordinary shares, 5.52 per cent of the total. On Monday big institutional investors said they would probably accept the GEC bid in the absence of a higher offer.

GEC will be interested in Ferranti's naval systems operations, the simulation training business, and the fuse-maker in America. The military businesses employ about 2,500.

Ferranti almost collapsed in 1989 under the weight of a pounds 215m fraud uncovered at International Signal and Control, the American arms exporter it bought for about pounds 260m in 1987. By August this year, Ferranti had an order book of just pounds 178m with new contracts hard to find.

When bidding for the important Delmon Eye air defence contract for Bahrain was delayed recently, Mr Anderson realised Ferranti's future lay with either GEC or the receiver.

Founded in the 1880s, when Sebastian Ziani de Ferranti patented an alternator, the company has been a defence supplier since the First World War. It became a household name with a move into domestic appliances and radio.

GEC shares fell 13p to 320.5p, despite a 5 per cent dividend increase to 2.81p, after Lord Prior, chairman, said that in the light of current trading conditions profits were unlikely to be substantially higher than the previous year's pounds 863m. Forecasts were reined back from pounds 935m to around pounds 875m.

Operating profits fell from pounds 285m to pounds 267m thanks to setbacks in electronics systems and telecommunications. This was offset by a rise in investment income and interest from pounds 62m to pounds 81m as the group's net cash balances rose by pounds 231m to pounds 2.4bn. Group order books rose by 5 per cent to pounds 13bn.

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