Having struggled with its US subsidiary for a year or so, components and systems distributor Electron House Plc has now decided to get rid of this venture and is planning a UKP5.1m rights issue to reduce the group’s borrowing and to finance its expansion. Borrowing is the key word here: Electron estimates that it will take a UKP3.1m interest charge for the year to May 31 1990 out of operating profits of UKP7.8m and believes that if it continues at such high gearing it will not be able to continue growing. Consequently, the planned rights issue will offer shareholders the right to buy two new shares for every five they hold, and 69 new ordinary shares for every 250 convertible preference shares held, at a price of 70 pence per new share. If the rights issue is a success then some of the money raised will go towards taking on new franchises for both computer products and electronic components and in enlarging the group’s interests in value-added services. At the interim stage Electron said that a major management shake-up was underway at its US subsidiary Electron House Inc. However, despite restructuring and personnel changes the company is not trading profitably and a further injection of cash is required to bring the business up to a viable level. The board of Electron House Group does not believe that shareholders would support such a move and so is negotiating to merge the US subsidiary with another company. In the meantime, Electron House Inc has defaulted on repayments for bank borrowings of $5.5m. The bank is giving the company 150 days to pay up or it will take control of stock and debtors up to an aggregate value of $4m. The group estimates that at year-end its investment in the US subsidiary stood at UKP1m, and that it was owed UKP400,000 on current account. Depending on the outcome of negotiations to sell Electron House Inc these sums are likely to be carried as extraordinary charges on the group’s profit and loss sheet for 1990. The shareholders of Electron House Inc are in the process of suing the previous owners of Almo Electronics Inc which was acquired by Electron’s US subsidiary in March last year. The group estimates that before extraordinary losses its pre-tax profit for 1990 will be not less than UKP4m and a total dividend of 5.8 pence is promised (in the absence of unfore-seen circumstances) for which the new shares will be eligible – a yield of 8.3% at the rights price. Robert Leigh is to remain chairman and chief executive, but Barry Charles becomes managing director, moving over from his post as marketing director.
