LDV insists management buy-out is still an option

Mar 23 2009 by Tom Scotney, Birmingham Post

Troubled Birmingham van-maker LDV has insisted a potential management buy-out of the firm is still on the cards, despite reports claiming the Government had turned down a desperately-needed loan.

LDV, which employs about 800 people in Washwood Heath and supports thousands more in its supply chain, presented the Department for Business, Enterprise & Regulatory Reform (BERR) with a dossier of information it says proves the firm is potentially profitable.

And it says the ball is now in the Government’s court over the future of the company.

LDV had been looking for an emergency loan of £4 million-£5 million from the Government to fund the proposed MBO by industrialist Erik Eberhardson – reduced from £20 million-£30 million after two investors said they were willing to put money behind the bid last week.

This weekend reports claimed the Government had turned down the bridging loan, and wanted to gauge the level of interest from the investors themselves.

But a spokesman for the firm said the MBO was still very much an option, and the Government had not ruled out the move.

The spokesman said: “This isn’t dead in the water. BERR has agreed to investigate all options, and the MBO team believe they have the best plan.

“The government had been given full access to the business plan and all the account plans, and they are now going to look at all the options. The ball is back in their court now.

“They are talking to the investors who are interested and seeing where they are with the process.

“We are still confident we have got a plan that makes perfect sense to the economy and the taxpayer. The reason it’s made losses in recent years is because it’s had such amazing investment. We still remain confident that the MBO bid is the best thing to do.”

Last week business minister Ian Pearson said the Government would not be putting any money into LDV unless it was matched by investment from the firm’s Russian owner Gaz. But the automotive firm, which has debts of about £1 billion that need to be paid off promptly, simply does not have the ability to put any cash into LDV, it was told.

The case made to the Government by LDV for support was based on efforts that have already been made to make the van-maker more potentially profitable.

The firm has reduced its break-even volume from 25,000 through strict overhead-cutting measures, and says its new MAXUS line of electric vehicles could be a huge success if they are allowed to go into production.

The Government has identified six key cutting-edge manufacturing sectors for support, to the chagrin of more traditional firms. These are low-carbon businesses; health and life sciences; high-tech manufacturing; high-value-added services; creative industries, such as music and computer games, and emerging technologies like nanotechnology or plastic electronics. LDV said its work on emissions-free vehicles is a key part of the reason it should be saved.

A financial lawyer has suggested a change in the tax break scheme for electric vehicles – which does not currently cover vans – could be an important part of a support bid for LDV.

Tim Stocks, head of the financial institutions and markets team at European law firm Taylor Wessing, said: “The government can help LDV by developing existing legislation around enhanced capital allowances (ECAs). ECAs are available to businesses investing in energy-efficient machinery and assets. These provide a significant tax break to businesses purchasing green technologies. Strangely under the current tax legislation, ECAs are available only on low-emission cars but not electric vans designed for the transport of goods or products.

“A key plank of the proposed buyout of LDV is to turn the company into an electric van manufacturer. If the government gives a cast-iron guarantee that the Budget will extend the ECA rules to vans this should result in orders from customers who would receive the benefit of ECAs on such purchases. In this way the buyout team could secure advance orders for its new electric vans.”