Bid Buzz Rises as Lucas Shuffles off to Buffalo

Daily Mail (London), June 1, 1996 | Go to article overview

Bid Buzz Rises as Lucas Shuffles off to Buffalo


Byline: MICHAEL WALTERS

GIVE it a few days, and Sir Brian Pearse and Victor Rice might feel a little better - though the chances are that they could have an uncomfortable crick in the neck to trouble them all through the summer.

Pearse and Rice are to be chairman and chief executive respectively of the new-fangled [pounds sterling]3.2bn Lucas Varity, the diesel engines and braking systems giant to be created by merging our very own Lucas Industries with Varity Corporation of Buffalo, New York.

Their neck problems will come from a constant urge to look over their shoulders, trying to spot whether a bidder is about to lay their plans to waste. Half of the share punters in the City are gambling on a bid for Lucas any day, now the Varity scheme is in the open. The other half reckons the game is over, or that the big money player, German electronics giant Siemens, might linger a while longer, and then take the whole Lucas Varity operation in one swoop.

Whatever way you look at it, Lucas is running for cover. While it has staged a strong rally from problems that produced pre-tax losses of [pounds sterling]130m for 1994 as chief executive George Simpson launched a radical re-shaping of the business, the future as an independent looks less rosy.

Profits should carry on rising from last year's [pounds sterling]135m to perhaps [pounds sterling]180m this year, and then some. But the diesel business is getting more difficult, and Simpson is soon to depart to run GEC. And all the while, the motor giants are demanding greater investment and capital commitment by suppliers such as Lucas.

Sir Brian was quick to claim yesterday that talks with Varity started way before Simpson announced his intention to leave, but Lucas needs a new driving force. Rice may be the answer. At Varity, he claims to have sent profits ahead `by leaps and bounds'.

Together, Lucas and Varity will make one of the top 10 automotive suppliers in the world, second in worldwide production of light braking and in diesel fuel injection systems. They expect annual pre-tax cost savings of [pounds sterling]65m from the second year, and tax savings approaching [pounds sterling]65m in the first three years.

The merger will be achieved by offering Lucas investors one share in the new Lucas Varity for every Lucas share. Varity holders get 1.38 Lucas Varity ADRs for every Varity share. Lucas shareholders end up with 62pc of the new company.

The pair looks likely to make pre-tax profits of [pounds sterling]300m this year, for earnings of 14p a share, according to Robert Speed of broker Henderson Crosthwaite. …

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