Castle Acquisitions - A Sleeping Beauty?

from ci t y w ir e...
A new company called Rydenor Investments has clinched an agreed takeover bid for Dowding & Mills, the long-established Birmingham-based specialist in rewinding the motors used in electrical and mechanical engineering, notably generators and traction equipment.

The 20p a share offer for the AIM-quoted company that started trading in 1919, values Dowding & Mills at £30.8 million, 23% over the closing market price of 16.25p on 21 November 2005, the day before it admitted receiving an approach that might lead to an offer. The shares added 0.75p to 18.5p in this morning’s trading with 21 deals involving 1.8 million shares.

Rydenor is a private company owned jointly by the clients of North Atlantic Value and Starlight and was formed specifically for the bid. North Atlantic owns 45.4 million Dowding & Mills’ (DWM) shares, or 29.44%, and Starlight 1.1 million. Both are acting in concert with other parties which include Totalassist, Forwardissue and Jetpath.

With Rydenor and those it is working with already owning 76.6 million shares, or 49.69%, the offer is in line with Rule 9 of the City Takeover Code and is virtually over bar the ink drying. With some of the directors committing 3.4 million shares, or 2.19%, behind the offer, Rydenor’s stake effectively rises to 51.88%.

The new owner plans to work with the existing management team and continue its policy of driving down borrowings. Small acquisitions will also be considered.

Dowding & Mills is heavily involved with the mining industries of Australia and the US, makes control systems and there is a high tech division involved with instrument calibration in eight of its 30 locations.

Around six years ago the group failed to react to changes in its core markets and went on a disastrous spending spree running up debts of £40 million.

In November 2002 institutional shareholder Hambro brought in company doctor Tudor Davies, whose medicine involved cleaning out the boardroom and suspending dividends.

Since then he has been driving down the debt so the group can once again be cash generative. Last year this involved pulling out of Holland and Luxembourg and selling its gear-related business.

Losses of £29.7 million in the year to 31 August 2003 were followed by profit before tax of £500,000 last year and £4.4 million this on a turnover of £99.64 million. The net debt has fallen from a peak of £39 million in January 2003 to £20.5 million at then end of the last financial year.

Interestingly, the Rydenor Investments bid is 86% over the price of the shares after the preliminary results were revealed on 21 November, and 248% over the 5.75p price at the time all the problems were revealed on 27 March 2003.

A question mark was placed over the future of the company at the end of its last financial year, which showed it had an unfunded FRS 17 deficit of approximately £26 million.

Further, new accounting regulations and funding requirements for the new pension regulations would eat into reserves and affect the funds available for distribution to shareholders. All this was on top of Dowding & Mills’ perennial problem of working in an industry with a notoriously short order book.

Rydenor directors Christopher Mills and Guy Naggar will both join the Dowding & Mills’ board. Tudor Davies, Tim Barrett and Ian Dickson will remain directors. When the offer is declared unconditional, Rydenor Investments will also invite David Banks and Colin Keith to remain as Dowding & Mills directors.

The shares were falling fast when we mentioned them at 18p on 27 May and bottomed at 16.25p so those that got in cheaply could have made a 23% profit in seven months. We thought it a share worth watching partly because Davies had bought a million.

and rns...