News - Midlands
High-Speed Dealmaking at LDV
Keeping a small independent UK vehicle maker on its legs is probably one of the toughest challenges in UK industry, yet somehow, some way, LDV just keeps on trucking.
The Birmingham vanmaker has now achieved the virtually impossible and kept itself alive for the third time in the face of almost insurmountable pressures.
First it was salvaged from the brink of disaster 13 years ago when its then owner, Leyland DAF, collapsed.
Then at the start of this decade it somehow kept itself going when would-be partner Daewoo went the same way.
Now management and new owners have carried off a third rescue of the Birmingham business, albeit via a controversial high-speed administration and the loss of more than 200 jobs - including that of long-standing chief executive Allan Amey who has taken early retirement.
Administrator Rob Hunt, of accountant PricewaterhouseCoopers, says: "If we had not gone ahead with this, I am sure that we would have had another MG Rover crisis on our hands." David Malpass, senior operations manager at Accelerate, the West Midlands automotive initiative, adds: "What we've seen is a Rover crisis averted.
We have not heard of any suppliers going under because of the LDV crisis.
If LDV had gone under it would not only have put 1,000 or more jobs at the company in jeopardy, but an estimated 3,000 among suppliers." LDV went into administration on 16 December last year owing, according to sources, more than £3100m to creditors.
But the period in limbo lasted "less than ten minutes", says Hunt, because its assets and staff were transferred to a new company - LDV Holdings, owned by venture capitalists Sun European Partners and European Acquisition Capital, which has an unspecified minority stake.
The £375m deal was accomplished at such high speed because of a pre-packaged administration (see "pre-pack" panel page 21) in which the paperwork and a willing buyer were arranged in advance of the administration process being started.
How much of that sum was used to acquire LDV's assets probably will not be revealed in advance of a creditors' meeting due in late February.
But, according to US-owned Sun's Paul Daccus, speaking exclusively to Insider, the pre-pack was initiated only late in the negotiations. "Our initial intention was to buy LDV as a going concern.
The decision to go for a pre-pack was only made in the final few days as the situation worsened." Daccus says his team were following two options. "Our preferred was to acquire LDV as a going concern, and use the pre-pack as a backup," he says. "Then we became aware that a purchase was not a viable option." Daccus and his colleagues met Amey in the first week of November as LDV was speaking to a number of potential saviours.
Speed was of the essence.
The company had recently launched its important new Maxus model but was running out of both time and money.
In its previous financial year, to December 31 2004, LDV had racked up losses of some £330m on sales of £3120.4m as it invested heavily in the new vehicle.
Daccus says: "LDV was nearly there but ran out of time and ran out of working capital.
It was unfortunate for them, but a great opportunity for us.
We went to the plant in the third week of November and started due diligence.
We had to work fast because the company was running out of time.
We started making investment decisions as we went along because we could not afford to wait until the last minute." Law firm Pinsent Masons' head of corporate in Birmingham, Andrew Hornigold, acted for Sun on the due diligence.
He recalls: "At the top level the management was working very hard over about two weeks to come up with an answer and exploring various solutions, but the decision to go for a pre-pack was only made a few days before the deal was completed." Indeed the pre-pack was carried out at such speed that many of LDV's suppliers were unaware that the process was taking place until it was complete.
But Hunt defends the move as the "least worst" way of saving the business. "The pre-pack was set up to sell the business straightaway," he says. "The purchasers gave us such a fantastic offer that we could not afford to reject it.
The alternative was to have a business that would not be able to continue trading.
It wasn't just the loss of the supply chain - a continued crisis would have been damaging to the brand." Many would argue that the brand has already been terribly damaged, not least because of poor PR handling of the administration, which left many commentators in the dark as they tried to piece together what was happening over Christmas.
But Hunt says: "If you are a creditor then a pre-pack - particularly one including the existing management - can come across as a bit smelly.
However, the fundamental judgment an insolvency practitioner has to make in the case of a pre-pack is: "Is this the best deal available?' "I'm an officer of the court and I have to justify that.
I have to be able to stand up in front of creditors and account for what I have done and I'm big enough to do it.
I have to act in the interests of all the creditors.
I wouldn't have agreed to the sale if I wasn't comfortable with it." According to sources it is unlikely that the mass of creditors will receive much, if any, money directly from the administration - even the secured creditors, owed tens of millions of pounds, will not be paid in full.
But most creditors are set to receive much of the money they are owed from LDV's new owners, who are keen to ensure the supply chain stays intact.
Daccus says suppliers of Maxus would get a "significant amount" of their money because "we have to have a supply chain, and we are already starting to produce vans".
Malpass says that, anecdotally, he was aware that many suppliers were receiving between 70 and 80 per cent of money they are due, adding: "We think that probably means the majority of creditors will get a large part of what they are owed." Hunt confirms: "LDV has come to arrangements with suppliers of Maxus.
There is some overlap between suppliers to Maxus and those for the old Pilot and Convoy models, but not as much as you might imagine because Maxus is such a radically different product." What may take longer to discover is whether a rescue package from the government for LDV's pension fund, now reportedly some £322m in deficit, will be forthcoming.
The government's Pension Protection Fund (PPF) confirmed at the start of this month that it was making an initial assessment of the fund.
If the PPF bails it out then current pensioners will get all of their pension payments and contributors 90 per cent of the result of their contributions so far.
But that assessment will take at least a year to complete.
Meanwhile, although the pre-pack and sale of LDV may have taken just minutes, the underlying issues that brought the business to the edge of collapse stretch back over a decade.
Ironically the latest crisis is a direct result of the company's attempts to secure its long-term future.
Until last year LDV's production line was geared to churn out variants of two models - Pilot and Convoy - that were a legacy of its days as part of Leyland DAF.
Although the models were steady sellers, their designs dated back to the mid-1970s, and they were showing their age even by the mid-1990s.
LDV needed both a new model and a partner to help it launch a new vehicle.
It began negotiations over a £3160m joint venture with Daewoo in 1997.
The Korean giant agreed to invest £325m for a large, but not controlling, stake in LDV, and switch production of its plant in Poland over to LDV models.
Meanwhile, the UK government pledged a £325m package to help.
But, after three years of negotiations, Daewoo also collapsed, putting the entire project, and LDV's future, in jeopardy.
Armed with £3125m worth of manufacturing equipment salvaged from redundant Daewoo facilities in Poland and Korea and shipped to Birmingham, LDV pressed on alone with plans to launch the new vehicle - Maxus - in early 2005.
The hopes were that Maxus would allow LDV to double its workforce to 2,000 and hit annual sales of 50,000 by 2007.
The plans were to phase out production of Convoy and Pilot.
But Daccus says it quickly became obvious that because output of the ageing models was not financially tenable in the long term "it was better to take the pain now and cease production straightaway".
Instead production of the important minibus version of Maxus will be brought ahead to May.
The variant has already been developed and is going through trials and a few final changes.
The flat back version of the van is due to be launched next year.
The axing of the two ageing models means that some 250 jobs will be cut - 160 hourly-paid workers and 90 management and staff - from mid-March.
But it is expected that redundancies will almost certainly be voluntary because "the employees are being hosed down with money", according to one union insider.
The most high-profile casualty has been the man who steered LDV through various incarnations and owners for almost 18 years, Allan Amey.
A month after Sun Capital came on board Amey's "decision to retire from the business" was announced, and Charles Megan announced as his interim replacement "effective immediately".
Daccus says: "LDV was still carrying the burden from the failed Daewoo deal.
Although it carried on alone, the costs involved, including materials, were quite high, so Maxus went to market with lower margins than had been expected. "Then there was the effect of MG Rover, which caused problems throughout the industry - suppliers were cautious, credit insurers demanded harder terms and dealers didn't want to risk being oversupplied with vehicles.
It is arguable that LDV was, in part, a victim of MG Rover's collapse and was swamped with the waves as it went under."
The Birmingham vanmaker has now achieved the virtually impossible and kept itself alive for the third time in the face of almost insurmountable pressures.
First it was salvaged from the brink of disaster 13 years ago when its then owner, Leyland DAF, collapsed.
Then at the start of this decade it somehow kept itself going when would-be partner Daewoo went the same way.
Now management and new owners have carried off a third rescue of the Birmingham business, albeit via a controversial high-speed administration and the loss of more than 200 jobs - including that of long-standing chief executive Allan Amey who has taken early retirement.
Administrator Rob Hunt, of accountant PricewaterhouseCoopers, says: "If we had not gone ahead with this, I am sure that we would have had another MG Rover crisis on our hands." David Malpass, senior operations manager at Accelerate, the West Midlands automotive initiative, adds: "What we've seen is a Rover crisis averted.
We have not heard of any suppliers going under because of the LDV crisis.
If LDV had gone under it would not only have put 1,000 or more jobs at the company in jeopardy, but an estimated 3,000 among suppliers." LDV went into administration on 16 December last year owing, according to sources, more than £3100m to creditors.
But the period in limbo lasted "less than ten minutes", says Hunt, because its assets and staff were transferred to a new company - LDV Holdings, owned by venture capitalists Sun European Partners and European Acquisition Capital, which has an unspecified minority stake.
The £375m deal was accomplished at such high speed because of a pre-packaged administration (see "pre-pack" panel page 21) in which the paperwork and a willing buyer were arranged in advance of the administration process being started.
How much of that sum was used to acquire LDV's assets probably will not be revealed in advance of a creditors' meeting due in late February.
But, according to US-owned Sun's Paul Daccus, speaking exclusively to Insider, the pre-pack was initiated only late in the negotiations. "Our initial intention was to buy LDV as a going concern.
The decision to go for a pre-pack was only made in the final few days as the situation worsened." Daccus says his team were following two options. "Our preferred was to acquire LDV as a going concern, and use the pre-pack as a backup," he says. "Then we became aware that a purchase was not a viable option." Daccus and his colleagues met Amey in the first week of November as LDV was speaking to a number of potential saviours.
Speed was of the essence.
The company had recently launched its important new Maxus model but was running out of both time and money.
In its previous financial year, to December 31 2004, LDV had racked up losses of some £330m on sales of £3120.4m as it invested heavily in the new vehicle.
Daccus says: "LDV was nearly there but ran out of time and ran out of working capital.
It was unfortunate for them, but a great opportunity for us.
We went to the plant in the third week of November and started due diligence.
We had to work fast because the company was running out of time.
We started making investment decisions as we went along because we could not afford to wait until the last minute." Law firm Pinsent Masons' head of corporate in Birmingham, Andrew Hornigold, acted for Sun on the due diligence.
He recalls: "At the top level the management was working very hard over about two weeks to come up with an answer and exploring various solutions, but the decision to go for a pre-pack was only made a few days before the deal was completed." Indeed the pre-pack was carried out at such speed that many of LDV's suppliers were unaware that the process was taking place until it was complete.
But Hunt defends the move as the "least worst" way of saving the business. "The pre-pack was set up to sell the business straightaway," he says. "The purchasers gave us such a fantastic offer that we could not afford to reject it.
The alternative was to have a business that would not be able to continue trading.
It wasn't just the loss of the supply chain - a continued crisis would have been damaging to the brand." Many would argue that the brand has already been terribly damaged, not least because of poor PR handling of the administration, which left many commentators in the dark as they tried to piece together what was happening over Christmas.
But Hunt says: "If you are a creditor then a pre-pack - particularly one including the existing management - can come across as a bit smelly.
However, the fundamental judgment an insolvency practitioner has to make in the case of a pre-pack is: "Is this the best deal available?' "I'm an officer of the court and I have to justify that.
I have to be able to stand up in front of creditors and account for what I have done and I'm big enough to do it.
I have to act in the interests of all the creditors.
I wouldn't have agreed to the sale if I wasn't comfortable with it." According to sources it is unlikely that the mass of creditors will receive much, if any, money directly from the administration - even the secured creditors, owed tens of millions of pounds, will not be paid in full.
But most creditors are set to receive much of the money they are owed from LDV's new owners, who are keen to ensure the supply chain stays intact.
Daccus says suppliers of Maxus would get a "significant amount" of their money because "we have to have a supply chain, and we are already starting to produce vans".
Malpass says that, anecdotally, he was aware that many suppliers were receiving between 70 and 80 per cent of money they are due, adding: "We think that probably means the majority of creditors will get a large part of what they are owed." Hunt confirms: "LDV has come to arrangements with suppliers of Maxus.
There is some overlap between suppliers to Maxus and those for the old Pilot and Convoy models, but not as much as you might imagine because Maxus is such a radically different product." What may take longer to discover is whether a rescue package from the government for LDV's pension fund, now reportedly some £322m in deficit, will be forthcoming.
The government's Pension Protection Fund (PPF) confirmed at the start of this month that it was making an initial assessment of the fund.
If the PPF bails it out then current pensioners will get all of their pension payments and contributors 90 per cent of the result of their contributions so far.
But that assessment will take at least a year to complete.
Meanwhile, although the pre-pack and sale of LDV may have taken just minutes, the underlying issues that brought the business to the edge of collapse stretch back over a decade.
Ironically the latest crisis is a direct result of the company's attempts to secure its long-term future.
Until last year LDV's production line was geared to churn out variants of two models - Pilot and Convoy - that were a legacy of its days as part of Leyland DAF.
Although the models were steady sellers, their designs dated back to the mid-1970s, and they were showing their age even by the mid-1990s.
LDV needed both a new model and a partner to help it launch a new vehicle.
It began negotiations over a £3160m joint venture with Daewoo in 1997.
The Korean giant agreed to invest £325m for a large, but not controlling, stake in LDV, and switch production of its plant in Poland over to LDV models.
Meanwhile, the UK government pledged a £325m package to help.
But, after three years of negotiations, Daewoo also collapsed, putting the entire project, and LDV's future, in jeopardy.
Armed with £3125m worth of manufacturing equipment salvaged from redundant Daewoo facilities in Poland and Korea and shipped to Birmingham, LDV pressed on alone with plans to launch the new vehicle - Maxus - in early 2005.
The hopes were that Maxus would allow LDV to double its workforce to 2,000 and hit annual sales of 50,000 by 2007.
The plans were to phase out production of Convoy and Pilot.
But Daccus says it quickly became obvious that because output of the ageing models was not financially tenable in the long term "it was better to take the pain now and cease production straightaway".
Instead production of the important minibus version of Maxus will be brought ahead to May.
The variant has already been developed and is going through trials and a few final changes.
The flat back version of the van is due to be launched next year.
The axing of the two ageing models means that some 250 jobs will be cut - 160 hourly-paid workers and 90 management and staff - from mid-March.
But it is expected that redundancies will almost certainly be voluntary because "the employees are being hosed down with money", according to one union insider.
The most high-profile casualty has been the man who steered LDV through various incarnations and owners for almost 18 years, Allan Amey.
A month after Sun Capital came on board Amey's "decision to retire from the business" was announced, and Charles Megan announced as his interim replacement "effective immediately".
Daccus says: "LDV was still carrying the burden from the failed Daewoo deal.
Although it carried on alone, the costs involved, including materials, were quite high, so Maxus went to market with lower margins than had been expected. "Then there was the effect of MG Rover, which caused problems throughout the industry - suppliers were cautious, credit insurers demanded harder terms and dealers didn't want to risk being oversupplied with vehicles.
It is arguable that LDV was, in part, a victim of MG Rover's collapse and was swamped with the waves as it went under."