Darwen dares, madness at Meldex
Posted on June 26, 2008 by Richard Beddard
Filed Under Companies |
Last month Andrew Brian, Darwen (DHP) chief executive, explained how he planned to shake up bus manufacturing and create a range of hybrid diesel-electric buses, but there are a couple of surprises in the detail now he’s putting the acquisition of rival bus manufacturer Optare to shareholders. The new name is Optare, not Darwen, and Darwen’s paying £5m in cash and £1.75m in shares as well as assuming £9.2m debt.
The reverse takeover is hard enough to comprehend. I find the next bit difficult even to put into words. Roy Stanley, Darwen’s chairman, owns 51% of Darwen and 100% of Optare. He bought Optare earlier in the year through an investment vehicle called Jamesstan. So, Darwen is buying Optare from its own chairman and majority shareholder.
Yesterday I asked Mr Brian why Darwen didn’t buy Optare in the first place and save us the misery of trying to work out this convoluted deal, and Mr Stanley from the suspicion of ‘flipping’ Optare for a quick profit.
He said the previous owners of Optare wanted to sell the company by the end of March while they could still benefit from taper relief on the capital gains tax they’d incur. Darwen had its hands full, listing in February so Mr Stanley stepped in. The £5m returns him the cash he put up to buy Optare. The extra £1.75m in shares covers his costs (fees, interest, and tax for example) and rewards him for the risk. Although Mr Stanley could wave the takeover through at the EGM on July 14, he’s elected not to vote.
And the name change? Although Optare might be a new one to investors, it carries more weight in the bus industry than new boy Darwen.
A couple of minutes on the ‘phone with the chief exec., and it all seems eminently sensible. So, is Darwen a small company that might one day make it big? The potential’s there (for more on that see the interview).
While it’s easy to get carried away with hybrid buses - climate change, fuel prices and renewed interest in public transport are quite a tailwind - other companies are developing them too. Darwen’s success also depends on its aspirations to be:
- A low-cost manufacturer
- A ‘one-stop’ shop for bus operating companies.
Optare completes Darwen’s range of buses, and gives it a national parts and servicing capability, so it’s a big step towards the second aspiration.
At the placing price of 40p, Darwen/Optare’s market value is less than £40m. To justify a growth share valuation of, say, 20 times earnings it has to make £2m shareholders’ profit. Four million, if the company’s only worth ten times earnings. Although the Optare half of Darwen only made £600,000 in shareholders’ profit last year, and Darwen bought its heavy buses out of administration, those figures don’t look scary to me.
Investors’ impatience is as much a risk as Darwen’s ambition, I think. There’s no sign of it now, but investors get antsy if profits don’t arrive on cue and Darwen has plenty to do in integrating Optare with its other acquisitions, engineering new buses with hybrid engines, and expanding production at new sites. It’s even mooting international expansion but Mr Brian says that won’t happen before the ‘back end’ of 2009.
Here’s a picture*1 of Andrew Brian and Michael Dunn (the incoming chief financial officer) with a Darwen double decker, and an Optare single decker.
Handsome - the buses 
Madness at MDX
Shareholders in Meldex (MDX) know all about waiting. They’ve been waiting for a decade and now the company appears to be tapping on the door of profitability some have lost patience with the its strategy and agitated for change on bulletin boards, in meetings with the company, and apparently in abusive emails and telephone calls.
It’s culminating in the resignation of the senior non-executive director and the company’s AGM today, which promises to be a much less congenial affair than Darwen’s forthcoming meeting. I’ve tried to contact chief executive, Richard Trevillion, who I’ve interviewed before but he seems to be busy.
Edmond Jackson is at the meeting, though, and his report will be on the Interactive Investor mothership tomorrow. These were his thoughts a couple of weeks ago.
Update! Here’s Edmond’s report on the AGM.
Footnotes:
- I didn’t take this one
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