pounds 18m lifeline bid for Aerostructures

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The Independent Online

EIS Group, the specialist engineering company, yesterday made an pounds 18.3m rescue offer for Aerostructures Hamble, the aircraft components manufacturer chaired by Lord King that was one of last year's stock market flotation flops.

The EIS offer values Aerostructures at around pounds 50m less than the company was worth when floated by bankers NM Rothschild in May last year.

The offer, which is recommended, has already received the support of 21.9 per cent of Aerostructures' shareholders, although some were said to be displeased by the valuation, which they saw as too low.

EIS is offering 7.72 new shares for every 100 shares in Aerostructures and there is no cash alternative. This values each Aerostructure share at around 32p compared with yesterday's opening price of 35p.

Sources close to the company hinted that shareholders would be best advised to accept the offer since there would be precious little for them if the EIS deal falls through without another bid on the table.

At the same time as disclosing the recommendation for the EIS deal, Aerostructures warned, along with its half-year results which show a loss of pounds 2.07m on reduced turnover of pounds 28m, that the accounts result in a breach of covenants under the company's bank facility with the Bank of Scotland. It says the board anticipates a further breach at the end of December if Aerostructures continues as an independent firm.

The Bank of Scotland has agreed to waive these breaches if the EIS offer becomes unconditional by the end of the year.

Yesterday's half-year results contained a warning, in effect the fourth since flotation, that turnover in 1995 would be below earlier expectations and that the firm had continued to incur losses in July and August.

The board said that, while it expected some improvement during 1996, the company was operating close to the limits of its banking facilities and its prospects as an independent company were uncertain.

Under these circumstances, the board's statement said, it considers "that the interests of shareholders would be best served by Aerostructures being part of a larger group."

Donald Black of Panmure Gordon, who are EIS's stockbrokers, said EIS would be good at correcting Aerostructures' problems on the production side. "Lack of orders does not seem to have been the problem; it's more the case that the company has suffered from overruns and shortages. EIS is just very good at these things," he said.

Peter Haslehurst, who is EIS's chief executive, said the acquisition will enhance his firm's aircraft division, which is one of the company's three main business activities. "We have the management skills to save the company," he said.

Aerostructures, he said, had suffered in three ways: it had lost control of its monthly output, it had failed to deliver on orders and it was a company hit by low morale. He promised to correct these three problems.

Mr Haslehurst dismissed the notion of allowing Aerostructures to go into receivership before picking up the assets possibly more cheaply.

EIS said that Aerostructures had approached the company in June to discuss various areas of possible co-operation and that these discussions had led to the offer being made. EIS, whose two other divisions are in fluid seals and power transmission; and in process equipment, made pre-tax profits last year of pounds 18.4m on turnover of pounds 347.2m.

EIS shares closed the day down 6p at 408p.