Hornby makes bid for failed Italian rival

Hornby, the model railway and Scalextric group, unveiled a £5.3m takeover offer yesterday for its Italian rival Lima.

The proposed deal, to be funded from Hornby's cash reserves, will give the toy maker leading positions in Italy, France and the US while boosting its UK position as well.

Lima not only makes model trains based on the Italian, French and US railways but also models based on modern British diesel and electric rolling stock, an area where Hornby is weak.

Not only will the deal give Hornby geographic spread, it will also give it an entry into a new gauge size of model railways. At the moment it specialises in the "00" gauge size, popular in the UK, which is equal to a 1:76 scale. Lima makes model trains in the "HO" gauge that is equal to a 1:87 scale. However, Lima's British models are made in the UK standard "00" scale, making the deal even more attractive for Hornby.

Frank Martin, the chief executive of Hornby, said: "The deal gives us ownership of very strong new intellectual property but also a large mould base of existing rolling stock."

Hornby has made its offer to the liquidators of Lima, which collapsed last summer after making losses of €7.1m (£4.7m) in 2002. While some traditional toy manufacturers have struggled against the attractions of computer games, Hornby has rebuilt its business over the past three years after previous management moved the company's manufacturing base to China.

That gave the company a much lower cost base and the current management have expanded further into the hobbyist and collector markets on the back of the popularity of the Hornby and Scalextric brands.

It has also succeeded in re-igniting interest in the children's toy market by signing licences to make the Harry Potter Hogwart's Express model train set. Last year the company had sales of £34.1m and sales of £5.4m.