Optare Shares Down Despite Equity Investment & New Contract

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Optare Plc (LSE:OPE) issued press releases today announcing the increased equity investment in the company by Ashok Leyland as well as the winning of a major contract for 190 of its midi-buses. Whilst this should be received well for stockholders, shares dropped 56.36% on a volume of 10,336,595 shares.

The Announcements

New Contract

The new contract announced today, worth approximately £18 million, provides 190 “Solo SR” midibuses to the City of Cape Town, South Africa. The buses will be assemble by Busmark 2000 in Cape Town from component kits and sub-assemblies manufactured by Optare.

Equity Investment

Ashok Leyland Ltd. increased its stake in Optare from 26% to 75.1% with an additional equity investment of £4,004,495. Ashok Leyland is the flagship of the Hinduja Group, a manufacturer of commercial vehicles in India. It operates seven manufacturing facilities in 5 cities, with a total production capacity of 150,000 vehicles.

Company Plans

As to the contract with Cape Town, Chief Executive, Jim Sumner said:

‘”I am delighted that our focussed efforts on growing our overseas business continue to yield results, in this case with the award of a very significant contract from one of the world’s most exciting cities. We look forward to building on this contract to supply further vehicles into this important market and to show that with our new state-of-the-art facilities at Sherburn in Elmet, Yorkshire and the significant support of our strategic partner Ashok Leyland, that we can meet demand for fleet volumes of buses at an internationally competitive cost both at home and abroad.”‘

As to the increased equity investment, Vinod Dasari, Managing Director of Ashok Leyland said:

“We see this as an important element in realizing our vision of being among the top 5 bus manufacturers globally. Through leveraging the synergies of the two companies, we are confident that going forward we will be able to accelerate technology sharing, develop future-ready products and substantially and quickly increase our global footprint.”

In addition, Mr. Sumner stated that:

‘”This is great news for Optare’s customers, employees and suppliers and secures stability and the long-term future of the business. The re-banking represents a defining moment in the company’s 3-year turnaround plan which commenced in June 2009.”‘

‘”In addition, our recent move to a new factory in Sherburn gives us the capacity and modern assembly facilities necessary to fully capitalise on the additional sales and joint product development opportunities which our deeper partnership with Ashok Leyland will undoubtedly deliver.”‘

Company Spotlight

Optare designs and manufactures buses, including single deck, double deck and mini-coaches. Optare was established from the former Leylan Bus company. The company’s commitment to stylish, easy-access, contemporary designs has attracted customers worldwide. The company is now focusing on introduction of low carbon output buses that feature reduced weight designs and optimised drive systems.

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