Ricoh poised to win Gestetner

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The Independent Online
Ricoh, the Japanese business machines giant, yesterday looked set to seal victory in its bid for Gestetner, the ailing British photocopier group, after upping its original indicative terms by pounds 15m to pounds 179m and winning a board recommendation.

Ricoh already owns 28.8 per cent of its target and Inchcape, the international trading group, has pledged its 15.1 per cent to the bid. But it also became clear that Gestetner's financial position is in much worse condition than it appeared after the group warned in May that problems with a Canadian subsidiary would lead to pounds 14m losses and a pounds 15m restructuring charge. Gestetner revealed that it is in discussions with its lenders, believed to be around a dozen mainly European banks, after the Canadian problems threatened to breach banking covenants by the end of the year.

Independent board members, led by chairman David Thompson, who have been negotiating with Ricoh since it announced its intention to make a bid earlier this month, said they believed the offer did not reflect fully Gestetner's recovery potential and growth prospects. But they added that they believed that the company's financial position "could restrict its opportunity to develop the business as an independent entity in the short term."

Gearing is not thought to have risen substantially above the year-end level of 60 per cent, but interest and leasing charge covenants have been threatened by a C$30m drop in income in Canada. The opportune timing of the move by Ricoh, which has three non-executive directors on the board, has created some bitterness at Gestetner.

It is thought that management felt it could handle the negotiations with the banks, although there would have been some cost in terms of having to pay a fatter interest margin.

A key factor in winning the board recommendation was the decision by Ricoh to narrow the gap between the offers for the ordinary capital shares and the ordinary shares, which have recently traded at a discount. The new terms raise the originally indicated offer for the former by 2p to 92p and for the latter by 10p to 89p. Gestetner capital shares rose 1p to 95p on yesterday's news, with the ordinary putting on 6p to 88p.

The differential offers had been a bone of contention between the two sides, but pressure to reach an agreed deal appears to have been increased by a Takeover Panel ruling. It is understood that the City watchdog made a waiver of the rule that forces bids for different classes of share capital to reflect any recent price differential in the market conditional on a board recommendation.