View from City Road: Maddox holders require faith

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The Independent Online
THE SOUTH AFRICAN entrepreneur Hugo Biermann was behind the phenomenal success of Thomson T-Line, the Vernons pools group. It grew from a pounds 2m company in 1986 to a value of pounds 180m when it was bought by Ladbroke in 1989. However, Mr Biermann's latest venture, Maddox Group, has yet to set the world on fire.

Maddox was created last February when Mr Biermann reversed two cables groups, Cables & Flexibles in the UK and Seacoast in the US, into a quoted shell, Pathfinders Group. In August it raised pounds 16.5m in a placing and bought the computer group Wakebourne for pounds 13.5m. Now Maddox, which is interested in buying more computer businesses, thinks it is too small to develop the cable companies and is selling them in a buyout for dollars 29.6m ( pounds 19.6m).

The deal is conditional on the buyers obtaining bank finance, and a large part of the consideration is in unusual financial instruments. There is pounds 5.36m of irredeemable preference shares, dollars 6m of perpetual preferred stock and dollars 7.2m of junior redeemable preferred stock. All these bonds have cumulative dividends - in other words they will by paid only if the bonds are redeemed, and nearly pounds 10m cannot be redeemed.

Mr Biermann and his advisers, Williams de Broe, say Maddox will receive an annual cash dividend of pounds 866,000 from the bonds, which will roll up only if the buyout vehicle cannot pay the dividends out of profits. As the latest audited figures show the cables companies just breaking even, Maddox shareholders need a lot of faith.