Invensys plans £3bn clearout to cut debts

Invensys, the struggling engineering group, yesterday scrapped its final dividend and announced plans to sell off more than half the business in an attempt to tackle its debt mountain and a rising pension fund deficit.

The company, which was ejected from the FTSE 100 index last month after a profits warning halved its value, also confirmed that Lord Marshall of Knightsbridge will step down as chairman at the annual meeting in July. He is being replaced by Martin Jay, the chairman of the shipbuilding and support services group VT.

The businesses being sold off include the troubled Dutch software company Baan and in total account for some £2.9bn of revenues or 60 per cent of total group turnover. It is the second major clearout since Rick Haythornthwaite took over as chief executive 18 months ago and will leave Invensys with just one core business focused on production management and a rail systems division.

One analyst described the move as an "alarm signal" while Raymond Greaves of Merrill Lynch said it placed "significant doubt over the value of the group".

Mr Haythornthwaite has already sold off businesses worth £1.8bn since arriving in October, 2001, bringing the amount raised from disposals to £4bn since Invensys was created from the 1999 merger of BTR and Siebe. A spokesman denied that the latest move amounted to the break-up of the group. "We see this more as a strategic refocusing of the company," he added.

Analysts suggested that shorn of everything apart from its production management division, the rump of Invensys would become a more tempting takeover target.

As well as Baan, the disposal programme will include its climate controls, metering and transmissions businesses. Analysts were confused, however, by the fact that two of the companies being sold off – Baan and the process control equipment maker APV Baker – form part of the production management division which Invensys now describes as "core".

To add to the confusion, the disposals account for 60 per cent of group revenues when Mr Haythornthwaite sought to reassure investors only two months ago that 80 per cent of the business was performing according to plan.

City sources said the explanation for the sudden acceleration in the disposal programme and the passing of the dividend was the pressing need for Invensys to get its debts under control and fill the hole in the pension fund. At the end of last September, it had net debt of £1.6bn.

Invensys shares perked up on news of the latest disposal plan, rising by 14 per cent to 14.5p. Nevertheless, they are still only worth a tenth of their value a year ago.

Most of the damage was done by February's profits warning which stemmed from worsening losses at Baan and a poorer second-half performance from its process controls businesses. Invensys stuck with its forecast of a £250m operating profit before exceptional items and goodwill write-offs for the financial year just ended.