When cashless shipbuilder Cammell Laird sank into receivership this Easter, the quartet of seasoned insolvency partners appointed from PricewaterhouseCoopers to liquidate the group hoped for a quick spring sale.
The task ahead for the PwC insolvency experts and their team of more than 40 accountants was to find a single buyer for the troubled group’s northern England yards and swiftly execute one of the largest industrial receiverships in recent years.
Team leader Ian Stokoe was no novice to the emotive world of UK shipbuilding receiverships, after his success a decade previously with Price Waterhouse securing the sale as going concern the famous Tyneside shipyard Swan Hunter.
Insolvency partners Tony Lomas, Michael Horrocks and Edward Klempka made up a heavyweight team to take on the huge task of anatomising and disposing of the group that had been held out as a hope for Britain’s once-proud shipbuilding industry.
More than three months into the receivership and the PwC team have become stuck in a long summer of attrition as work in the Birkenhead, Tyneside and Teesside yards dries up and weekly redundancies further reduce the once 2,000 strong workforce.
On 3 July three receivers axed 71 jobs mostly at the flagship Birkenhead yard, which reduced the group’s total workforce to just over 660 shipyard workers facing no new contracts next month.
Industry insiders now believe that potential bidders are waiting for the receivers to give notice to all the group’s staff and close down the yards before they make their knock-down offers without redundancy liabilities.
Receivers had initially fanned hopes that the group could be sold-off as a whole, but so far only separate offers for the group’s main yards at Birkenhead, Tyneside and Teesside have come through PwC’s fax machine.
Moutlon’s quid bid
Last month Jon Moulton’s venture capital house Alchemy withdrew from takeover talks with rival UK shiprepairer A&P, which was itself bought out by managers and backed by RBPE, the private equity arm of Cammell’s main creditor Royal Bank of Scotland.
Moulton had planned to take over struggling A&P for a reported Pounds 1, and then buy up Cammell Laird for around Pounds 10m and merge the two companies into one main ship repairer for the UK.
A management buy-out team has placed an offer for the Hebburn yard on Tyneside, and the former shipyard boss for the Teesside facility. A further MBO for the group’s flagship Birkenhead yard and a rival bid for Hebburn by Tyneside neighbour Swan Hunter are yet to be lodged.
‘After the receivers’ initial hopes for a quick sell-off don’t materialise, you enter a stage when potential bidders wait to see who will pay what,’ explains AEEU union regional representative Ted Gilbertson. ‘Meanwhile, the existing business and workforce is run down, which minimises liabilities and future costs.’
The break-up of Cammell Laird UK is a far cry from the vision that chartered accountants and senior directors Jon Schofield and Brett Martin had six months ago for the one-time darling of the London Stock Exchange.
Schofield, who was appointed group financial director in 1999, joined the company from accountant Grant Thornton, where he had overseen due diligence on most of Cammell Laird’s acquisitions since flotation in 1997, including the purchases of DG Electrical and Wear Dockyard Group in 1998.
Chartered accountant Martin joined the board of directors as deputy chief executive in 1998, after two years as the group financial and commercial controller. He already had shipping experience as FD for the LSE-listed ferry company the Isle of Man Steam Packet Company Ltd.
Chartered accountant Rowan Sumner, a partner in the accountants Moors, Andrew Thomas & Co and a corporate finance expert with extensive experience in the ship repair and conversion market, also sat on the board as a non-executive director. Certified accountant and chief executive John Stafford, who founded Cammell Laird Technical Services in 1985, led and recruited the core crew of accountant directors.
The ambitious Cammell Laird expansion programme gathered momentum in 1997 with a listing on the London Stock Exchange, which brought the funds for the purchase in 1998 of a long-lease for the historic Gibraltar yard, and a north-east presence.
Last year, the group took a 49% stake in one of the USA’s major floating docks, Cascade General and a long-term lease on the Marseilles drydock, the biggest facility of its kind in Europe.
The future still looked bright on 22 November 2000 when an Italian cruise ship rounded the north-west coast of Spain on its way for a Pounds 50m liner conversion contract at the group’s Birkenhead yard.
Stafford, Schofield and Martin had clinched the deal with Italian owners Costa Crociere to cut their cruiseship Costa Classica in two and fit a 7,500 tonne mid-section by putting up their own money to build the 12-deck extension and agree to a pay-on-delivery terms.
At 3pm the same day the captain of the Costa Classica was ordered to turn back to Genoa. Costa Crociere had terminated the contract on the grounds of delays and poor workmanship and a financial crisis was unleashed that led five months later to the arrival of PwC receivers. Share prices lurched into freefall from a high last year of 141.5p to 5.5p before being suspended at 6p each with the company’s market capitalisation dwindling to a mere Pounds 17.3m.
The Italian job
The decision by the Italian cruiseship operator and its owner US cruise giant Carnival exposed a high risk finance strategy at the heart of Cammell Laird.
Hopes to win a Pounds 344m deal to build two luxury cruiseships for the US consortium Luxus also failed to materialise. The directors failed to persuade the DTI to drop its requirement for a $150m (Pounds 107m) refund guarantee, although civil servants claimed this would be the highest level of risk-sharing ever undertaken by UK government. The DTI had also agreed to provide 9% shipbuilding intervention funding.
Stafford resigned in January and was replaced by FD Schofield as losses for the six months to the month before the Costa Classica debacle stood at Pounds 3.5m against a profit last year of Pounds 16m. Meanwhile debts mounted to Pounds 46m.
In the meantime, the huge Costa Classica mid-section stood rusting in the Birkenhead yard, while the first 12% payment of EUR7.5m (Pounds 4.6m) approached on 15 April on a junk bond issue taken out in October to raise EUR125m for the group’s ambitious expansion plans.
The boardroom also had to find Pounds 10m at the end of April to meet the servicing covenants of a Pounds 50m overdraft with Royal Bank of Scotland.
On 11 April, directors admitted defeat and the Royal Bank of Scotland appointed PwC as receivers, followed a week later with the appointment of another high-powered team of insolvency experts from KPMG Corporate Recovery as administrators for Cammell Laird Holdings.
KPMG partners Roger Oldfield and Brian Green have been given the difficult task of pursuing Costa Crociere through the Italian courts for up to Pounds 42m.
The firm is working ‘where appropriate’ alongside PwC to recover money for creditors, but last month talks to sell the midship section to German yard Lloyd Werft fell through due to massive legal problems.
Accountants PKF, led by Manchester-based insolvency partners Jon Newall and Philip Long, were also appointed as joint administrative receivers to Merseyside subsidiaries Wright & Beyer, and Warbreck Engineering.
Meanwhile, last month Stafford, with private money, led a management takeover of the Gibraltar yard. PwC receivers’ long summer looks as if it will end in an assets-only sale of Cammell Laird, but KPMG looks set for a longer journey in pursuit of Costa Crociere through the Italian courts.
THE LIFE AND DEATH OF CAMMELL LAIRD
– 1824: William Laird establishes the Birkenhead Iron Works on the west bank of the Mersey River
– 1861: Laird Brothers starts trading, building ironclads
– 1938: Builds HMS Ark Royal , which was involved in the battle that led to the sinking of the German battleship Bismarck
– 1953: Renamed Cammell Laird
– 1955: The successor to the first HMS Ark Royal is completed. At 55,000 tons she is the largest warship built in Great Britain
– 1960: Constructs 36,000-ton liner Windsor Castle
– 1970: Reorganised as Cammell Laird producing cargo vessels and oil and gas tankers
– 1977: Becomes part of British Shipbuilders
– 1985: Completes second Type 42 destroyer and merged with Vicker Barrow
– 1993: Owner VSEL ceases production and closes its shipyard. John Stafford’s venture Coastline Industries rents yard
– 1995: Coastline takes Cammell Laird name
– 1997: Floats on London Stock Exchange
– 1998: Takes on Gibraltar shipyard and Wear Dockyard Group, with facilities in Hebburn, Sunderland in Wearside and Teeside, and Tyne Dock Engineering in South Shields on the Tyne
– 1999: Purchases former Hawthorn Leslie yard in Hebburn. Wins Costa Classica project. Charters Edinburgh Castle to US-based Premier Cruises – 2000: Leases Marseilles yard in September, in November Costa Classica U-turns on conversion
– 2001: CE John Stafford resigns on 30 January; PwC called in as receivers on 11 April.
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