Wassall accuses Evode of breaching covenants

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The Independent Online
WASSALL yesterday attacked its bid target, Evode, for being in breach of covenants relating to its US preference shares. The attack came after Evode began its campaign to see off the bid, releasing profit figures better than the market expected and an aggressive defence document.

The company announced a 40 per cent rise in pre-tax profits to pounds 10.2m for the 53 weeks to 3 October. Andrew Simon, Evode's chairman, said: 'Our results at the half-year were good and are even better for the full year. They demonstrate that we're now turning the corner.'

He added that earnings per share at 3.2p were 43 per cent higher than Wassall's estimate of 2.24p in its offer document.

He said that Wassall's offers 'completely failed to reflect the value of the company. They also fail to take into account the management's achievement in reducing debt by 38 per cent.'

Evode's debt-to-equity ratio is about 50 per cent, but this is disputed by Wassall's chief executive, Chris Miller, who said Evode's US preference shares should be counted as debt and pushed gearing above 170 per cent.

Mr Miller said that Evode's breach of covenants relating to the preference shares showed that the company was extremely vulnerable. He pointed out that the breach allowed the two US preference shareholders to appoint one director each to the board.

Evode said the company had made no secret of the fact that it was in breach of a covenant relating to interest cover, but that the US shareholders involved had written to the company waiving their rights to appoint a director.

A spokesman denied Evode was also in danger of breaching other covenants, which would allow the preference shareholders to demand payment immediately.

Evode pointed out that it had a pounds 72m loan facility, of which only pounds 38m was committed.

'We are successfully managing our way through the worst recession in the UK since the Second World War,' Andrew Simon said. 'The excellent performance of the North American division demonstrates the success of our policy of moving into new markets, having achieved a 44 per cent rise in operating profits.'

However, Mr Miller denied that Evode had surprised Wassall with its better-than-forecast results. 'It was more or less what we expected, and we still believe that their operating margins are inadequate at 5.9 per cent.

'The figures are flattered by their comparison to the previous year, in which Evode's performance was particularly dreadful. Earnings per share are still lower than at any time in the past 10 years, leaving out 1991.'

Evode's defence document reveals that Wassall would have to pay more than pounds 1.5m in compensation if it dismissed Evode's management, as revealed in the Independent last week.

Evode shares stuck at 91p, 11p up on Wassall's 80p cash offer.

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