PRIVATISATION OF THE ROLLING STOCK LEASING
COMPANIES (PAC 97-98/352)
Supplementary Memorandum from Mr Andrew
Jukes of Forward Trust Rail Limited
Q 157 What income do I receive from my
The annual after tax income for me personally
is approx. £400,000 (it varies with 6-month LIBOR).
Q 200 What was the value placed on secondary
In arriving at the final (29th September 1995)
bid of £650m, a range of factors and views were allowed for
which make it difficult to break down the total with precision.
However, as an indication of the contribution of secondary lease
income, the forecast net cash flow from secondary leases had been
valued, on a discounted cash flow basis, at between £50m
Q 213 Please explain the reduction from
indicative offer of £845m to the final price of £580m?
The indicative offer of £845m did not allow
for a number of major risks. As set out in the attached extract
from the indicative offer letter dated 6 July 1995, these major
risks were expected to result in a reduction of approximately
Following the final bid on 29 September 1995,
Hambros requested a reconciliation between the final bid and the
indicative bid, and a copy of this is also attached. This shows
the effect of the two main changes bidders were requested to make
in the assumptions used. The revised assumed completion date (1/4/95
for indicative and 31/10/95 for final) and the altered assumption
on cash in the business were each worth £93m.
The overall reconciliation is as follows:
|Allowance for major risks||(85)|
|Cash at 31/3/95||(93)|
|Cashflow from 1/4/95 to 31/10/95||(93)|
|29th September 1995 bid||650|
|Adjustment for limited warranties||(20)|
The value of Newco's indicative offer for the shares and the
BRB Debenture of Eversholt is £845 million.
The consideration would be payable in cash on completion or
such later time as the vendor may require.
Basis of and assumptions underlying indicative offer
Newco's indicative offer is subject to the conditions and
pre-conditions set out below and is made on the basis and assumptions
set out in section 4(a) to (h) on pages 19 and 20 of the Information
Memorandum. In particular, it is assumed that:-
- Eversholt is acquired and financed by Newco
from 1st April 1995
- the £93.3 million due from BRB at 31st March
1995 will be settled in cash, as shown in the working capital
projections in the Supplementary Information Memorandum
As we are working with the management team of Eversholt,
we have had access to information not available to other potential
acquirers at this stage. This has given us an insight into a number
of risk areas of which other potential purchasers are unlikely
to be aware at this stage.
- the amount of the BRB Debenture including any accrued
interest at completion is £601.6 million.
The major risks we have identified are:-
- the possibility that secondary lease rates will
be below the levels set out in the Information Memorandum
- a level of bad debts which is not assumed in the
- the possible modifications to, or scrapping of,
the Mark I coaches and multiple units
- incremental costs resulting from recommendations
in the Cowden and Clapham accident reports and other major changes
to the safety regime.
No account, beneficial or otherwise, has been taken of the
impact of the Networker Express lease arrangements which may be
entered into by Eversholt prior to completion.
- costs associated with the financing of Sparesco.
To enable you to evaluate all offers on an equal basis we
have, as you suggested, not reflected these risks in this indicative
offer although they have been factored into our funding requirements
shown later in this letter. Our funding structure assumes a price
of £760 million, reflecting a reduction of approximately
£85 million in respect of the factors referred to above.
Offer price reconciliation
|Final offer (pre Networker):||£650m|
The indicative offer was based on:
- Hambros information memorandum
- Newco assuming the cash in the business at 1.4.95
The indicative offer of £760m was an after reduction
of £85m to reflect the information that was available to
us but not other bidders at the time of the offer.
- Newco assuming the cashflows of Eversholt from 1.4.95
|The final offer has been arrived at as follows:|
|Less: cash at 31.3.95||(93)|
|Cashflow from 1.4.95 to 31.10.95||(93)|
Forward Trust Rail Limited
17 June 1998