Cray Electronics Holdings Plc duly announced yesterday that it has agreement to buy the information technology division of Dowty from TI Group Plc for UKP50m, UKP40m of it in cash and the rest either in cash or in the form of a loan note, at Cray’s discretion. It plans to raise some of the cash by making a one-for-two rights issue to shareholders at 61 pence a share against the price of its shares in the market at which they were suspended on Thursday of 75 pence. Because the business Cray is buying is more than twice the size of its own, the shares will remain suspended until this morning so that shareholders have the chance to mull matters over first. The rights issue is intended to raise UKP39m of the UKP50m Cray needs. As expected, the agreement does not include the loss-making Cognito mobile public data messaging service, which TI Group says it plans to close, despite Dowty having invested a reported UKP30m in it. The division that Cray is buying, the core of which is the old Case Group Plc, made a pre-tax loss of UKP4.1m on sales of UKP172m in the year to March according to Dowty – a rotten performance given that it made a profit of UKP9.5m on sales of UKP192m the year before – but the unit would have been in profit in fiscal 1992 but for a UKP4.4m loss from Cognito. The sale excludes divisional property with a book value of UKP13m, and proceeds will be used to reduce group debt, and TI, having been through the books, reckons that the business being sold had sales of UKP176m on which it made a pre-tax profit of UKP700,000; net assets excluding the property that is being retained UKP45m. The increasing efficiency which can be achieved by bringing our combined resources to bear on the new group will flow through into improvements in operating margins and profitability, the company said. The new business will be combined with the company’s Craycom Ltd, which brought together its four data communications equipment subsidiaries. Separately, Cray Electronics says that pre-tac profit for the year to April 30 rose 37% to UKP4.8m on turnover that fell 21% to UKP84.8m as a result of disposals of non-core businesses – the company says that on a like-for-like basis, that was marginally up. Cray’s principal businesses will now be the enlarged Craycom, the J O Grant & Taylor installation and services company, the Marcol aerospace, defence and financial software company and a small defence electronics arm, where orders were up. Borrowings were reduced to UKP15m from UKP28m during the period under review, and the agreed sale of Malvern Instruments will leave Cray cash-positive. As to the rights issue, shareholders look to have a lot to thank Cray’s new management for, and are unlikely to begrudge the company the cash. Now that Dowty has done most of the hard work at the information technology division, the fact that Cray can spread research and development and costs over a bigger business means that the company should be set fair.
