Outlook: Mayflower's bid for Vickers is full of holes

OUTLOOK ON AN IMPLAUSIBLE BID, OVERSEAS AID AND TOBACCO SPONSORSHIP
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The Independent Online
It's not quite: "I loved the Roller so much I bought the company," but it's not far from it. Mayflower bidding for Vickers would have seemed inconceivable only a couple of years ago when the car body maker was barely a quarter the size of the Challenger tank and Rolls-Royce cars group. Now they are almost the same size, it is merely implausible.

All the same, it is not hard to see why Mayflower should have swung into action after Vickers announced last week it was selling its luxury car subsidiary. The company has carved out a lucrative niche designing and building car bodies and its profits are flourishing. The potential loss of its Rolls-Royce account to a rival with better connections in Munich would have dealt it a severe blow - what more certain way of securing the business than by buying it?

That's the thrust of the commercial argument. For the gist of the financial case look no further than the recent share price performance of the two companies. Since the beginning of 1993, Mayflower's share price has risen more than 10-fold as it has cashed in on the trend among car manufacturers to outsource the design of their ever more diverse ranges. Vickers' shares are worth about the same as they were 10 years ago when Sir Ron Brierley was trying to break the group up.

Look any closer than this, however, and the holes start to appear. First, cash. It would be optimistic to assume Vickers' shareholders would accept anything less than a 30 per cent premium to the company's present market value of around pounds 800m. A bid of pounds 1.1bn would probably entail doubling the number of Mayflower shares in issue even before the assumption of over pounds 500m of debt. It would be wrong to assume that the planned disposal of the defence arm into a buyers' market would make much of a dent in those borrowings.

Having never spent more than pounds 100m on an acquisition, it is hard to believe Mayflower is really up to the possible pounds 500m cost of developing the next generation of Rolls-Royce cars. Vickers itself took one look at that bill and hoisted the for-sale sign - what hope Mayflower? But just in case Mayflower is serious, Vickers has cleverly pre-empted its designs, by getting this out into the market place before Mayflower was ready to go. That makes Mayflower's chances of success even more remote.

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