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November 11, 1993


By CBR Staff Writer

It has all fallen apart for Maddox Plc – having failed to find a banker willing to back UKP3.6m of liabilities, the London network systems integrator is proposing a rights issue of 390m new shares at 1 penny each. The company’s balance sheet shows a negative net worth of UKP4.7m, where last year it was positive to the tune of 12.4m. Struggling to survive, it is also proposing a capital reconstruction; board changes; and a change of name, together with changes to the acquisition agreement held by the original owners of Wakebourne, its sole subsidiary – which is actually making a profit. Most of Maddox’s problems stem from its acquisition of Cables & Flexibles Ltd and Seacoast Electric Company Inc back in March 1992. It quickly became obvious that neither company was healthy so they were both sold to Lantek Electronics Inc, in return for which Maddox got UKP4.9m cash which paid off Seacoast’s debts – and UKP15.1m in stock, shares and loan-notes in Lantek. Unfortunately for Maddox, it made certain guarantees to Lantek, about the companies’ performance. Cables & Flexibles is now in administrative receivership, landing Maddox with about UKP1.74m of liabilities and Seacoast’s trading has been patchy. As a result Maddox has decided to bite the bullet and provide against the whole UKP15.1m book value of Lantek – which accounts for most of Maddox’s UKP18.9m pre-tax loss. At the same time Maddox has revealed another UKP1.85m of debts and liabilities incurred in sale of the two companies; compensation to a former director; and the cost of setting up its Belgium subsidiary, Layer 7 NV. In summary, Maddox has around UKP3.6m of liabilities and no way to finance them since it is solely a holding company for the group, has no borrowings or bank facilities and virtually no cash. Moreover it cannot squeeze the necessary money out of Wakebourne Group Holdings Ltd. Wakebourne is trading profitably, but has borrowings of around UKP4.9m and its bankers will not allow it to bail Maddox out, or indeed pay it anything, other than UKP250,000 management charges per annum. In September Maddox reported it had been approached by potential buyers for all or part of the firm (CI No 2,263).

Another complication

Nothing has come of this possible source of cash and the Maddox has now closed discussions. More promising is a letter of intent proposing a merger of Lantek and VTX Corp – listed in the US. However negotiations are at an early stage, VTX has yet to find funding and the whole thing is too uncertain for Maddox to rely on. And before the rights issue can go ahead, there is another complication. When Maddox bought Wakebourne in August 1992 (CI No 2,080), the founders of Wakebourne, including Mike Cartright, Allen Timpany and Frank Emerson, who are now directors of Maddox, were given the right to buy back Wakebourne if Maddox hit a number of insolvency benchmarks. The price formula, fixed at the time, currently equates to a buy-back price today of UKP1.5m. At the same time a complex set of shareholder rights were put in place. Since Maddox now essential consists just of Wakebourne, the founders and option holders have agreed to scrap the buy-back agreement and alter the shareholder agreement so that the new shares, if issued would, added to the shares the founders already have, and those that they are entitled to, represent about 29% of the new enlarged Maddox. Meanwhile the company has decided, reasonably enough, to change its name to Wakebourne Plc, and is looking to take on two non-executive directors, one of whom will become non-executive chairman, replacing Hugo Biermann, one of the Maddox old guard who is resigning as a director to pursue other business interests. Other departures include Ernst & Young, the group’s auditor, which has resigned in favour of long-time Wakebourne advisors Touche Ross & Co. In addition to the write-offs associated with the disposal of Seacoast and Cable & Flexibles, the company reorganised the Belgium operation and renamed it from Layer 7 NV to Wakebourne NV. Earlier this month it also disposed of Cablelink

(UK) Ltd. At the end of the day it has been a very expensive and messy way for Wakebourne to gain the letters Plc after its name. Wakebourne itself contributed UKP1.2m pre-tax profits before head office costs were added and says that the Switch Computer Ltd operation that provides on-site computer support to customers in the City of London is already contributing to profits. The share offer is being underwritten by Williams de Broe Plc and the issue of seven new shares for every eight old ordinary shares is expected to take place on the December 6, pending an extraordinary general meeting two days earlier. The directors are also proposing that each old ordinary share be divided into one new share and a deferred share of 4 pence.

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