Henlys' US deal could spark bid by Volvo

BRITISH BUS and coach manufacturer Henlys Group yesterday unveiled a $665m (pounds 413m) takeover of US school bus manufacturer Blue Bird Body Company, raising the possibility that shareholder Volvo may bid for the Hertfordshire-based firm.

Henlys said that the Swedish motor giant, which holds 10 per cent of Henlys, would take up $255m in new convertible 10-year loan notes to help finance the proposed US deal. The notes hold an anticipated conversion premium of 20 per cent over the theoretical price of Henlys shares - allowing Volvo to raise its Henlys stake to 30 per cent, triggering a takeover.

"The conversion does give them the chance, if they fully convert - at the end of the day it is a decision that they have to take,'' Henlys chief executive, Robert Wood, said.

Volvo picked up the 10 per cent stake in August 1998 as Henlys sought to bid for bus and truck chassis maker Dennis Group. That bid failed as Dennis was bought by rival Mayflower Corp.

Steve Medlicott, analyst at Albert E Sharp Securities, said: "It [a Volvo move for Henlys] is going to happen at some stage, but not in the initial term."

The Blue Bird deal, which won a broadly positive reaction from City analysts, will give Henlys a 40 per cent share of the US school bus market. Blue Bird also manufactures luxury recreational vehicles and medium-duty commercial buses.

Henlys said it would finance the move with fresh borrowing of $400m; an equity placement worth at least $100m and the Volvo-held notes.

Under the terms of the deal, Henlys will pay $428m for the Georgia-based firm, and repay its $237m debt.

Blue Bird, which is owned by Merrill Lynch Capital Partners and Blue Bird management, reported profit before tax of $21.3m on sales of $237.3m in the six months to 1 May.

Henlys said it would sell its products through Blue Bird's 65-centre US distribution network, and raised the prospect that Blue Bird's output could be offered through Volvo's 60-country network.

Analysts said that the proposed deal would fit well with Henlys existing North American holdings: it holds stakes in bus-shell manufacturer Prevost, and Nova Bus, which produces transit buses.

Under stock exchange rules, the transaction will constitute a reverse takeover. Henlys shares were suspended at 570p.

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