Mayflower to stage £67m rights issue

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The Independent Online

Mayflower, the bus and car parts manufacturer, is seeking to raise £66.7m from shareholders after the company found its balance sheet stretched.

The move will also allow the group to make small acquisitions and it is currently looking to buy a bodyparts business in Germany, for £15m-£20m, that is in receivership.

Debt at £210m was not comfortable, said David Donnelly, the finance director. The company paid £280m in 1998 for Dennis, the bus chassis and fire-engine maker. "We paid for Dennis in cash. With the benefit of hindsight, we might have financed it differently," Mr Donnelly said.

As well as acquisitions and debt reduction, the fundraising will give the company the working capital necessary to fulfil orders from the car industry. Mr Donnelly, said the first "green shoots" of a recovery were emerging from automotive manufacturers and Mayflower needed greater resources to compete for these orders.

Mark Little, an analyst at Deutsche Bank, said: "Without this rights issue debt, further growth [opportunities] would have been curtailed. They have given themselves some breathing space, to see through this economic cycle."

Mayflower, which last year merged its bus business with that of Henlys, has been through two years of difficult market conditions.

Mr Donnelly said that simply to rely on trading its way out of its financial constraints would have taken many years.

"This [rights issue] will accelerate the growth prospects of the company and the delivery of profit to our shareholders," he said.

The four-for-11 cash call, pitched at 70p a share, is fully under-written by Credit Suisse First Boston and KBC Peel Hunt. The company's shares closed down 6.5p to 87p yesterday, having fallen from 285p in 1999.

Investors pointed out that the fundraising was at a historically low level for the company's shares and this pointed to a distressed situation.Mayflower said that, as well as signs of a rebound in the car market, its bus division now had a solid order book, taking up its manufacturing capacity up to the end of fourth quarter of this year.

The company last tapped its shareholders for money in 1996. The company said: "The board has concluded that a call for support from its shareholders at this time to strengthen the group's financing structure will allow it to grow with confidence."