With Jim Slater as a recent investor and an 8-figure market capitalisation, Bullers looks to have bounced back from the dead. But has it really? By Chris Blackhurst.
By now, Bullers plc should have been consigned to the corporate graveyard - another small company ravaged by recession; another deletion from the stock-market list. In the six months to June 1994, turnover was a mere £1.7 million, with losses of £402,000. The latest balance sheet showed negative net worth of £2.5 million at 31 December 1993. The depths to which the company had sunk was reflected by the need for a one-for-1,000 share consolidation in March 1994, believed to be a City record. Prior to this, the bid price for the shares was precisely nil.
What then is Bullers doing with a market capitalisation of £10.9 million, with a recent rights issue at 20p per share safely tucked under its belt? The answer hardly lies in its business - a collection of disparate, unfashionable concerns. The company's press description as 'the giftware-to-meat-processing group' together with a stock exchange listing under 'textiles & apparel' speak volumes for a business sadly lacking in focus. It is a hotchpotch comprising three 'divisions' and no obvious synergy: 'industrial' - a meat-processing firm, purchased for £1 shortly before the receivers were called in, a fire-surrounds manufacturer and a maker of metal ornaments and sculptures; 'media' - in fact a Soho-based film post-production house that was itself in financial trouble before being bought by Bullers; and 'giftware' - a company making small enamel boxes, another making military figurines and a small shop selling high-class gifts and knick-knacks in Burlington Arcade in London. Given that eclectic lot, it should come as no surprise that the financial-headline-writers' pencils remain sharp, producing such quizzical gems as 'Cut the Bullers' and 'Load of Bullers?' Investors, though, see things differently. Like customers in the betting-shop on a mid-week afternoon in winter, there is something hard-bitten and unnerving about investors in troubled smaller stocks. Unlike others who play safe and stick with blue chips, they have no cushion if things go wrong. With small companies, especially those in difficulties, they are always close to the edge. Their reward, if things are transformed, can be spectacular. In Bullers, they feel, they are on to a sure-fire winner. Or, rather, they feel, in David Cunningham, its chairman and Jim Slater, best-known investor, they cannot fail.
Just as smaller companies tend to attract a different kind of punter so they also appeal to a special sort of manager. Big companies nurture their future bosses but small ones - especially those in trouble - cannot afford that luxury.
As a result, a whole cadre of people exist who move from one company to another. With them comes a terminology. Self-styled entrepreneurs, they do not take a job but a quoted 'vehicle' - usually a company that has seen better days, is weighed down with debt and has nowhere else to turn. Often, they see themselves as 'recovery' experts or 'turnaround' specialists. Their tactics follow a familiar course: persuading creditors to hang fire or to swap their debt for equity, while at the same time using what little money the company can raise to make acquisitions.
Their rewards are fees and expenses, with compensation if they leave early, and share options. Sometimes they stay, sometimes they fulfil their promise, but they also have a habit of moving on. Hardly ever - unlike their shareholder followers - do they appear to lose.
One recent recruit to this charmed circle is David Cunningham. For most people, being either a barrister, accountant, stockbroker would be sufficient. Cunningham is all three. Today, with his tailored pinstripe suit, gold watch chain, City shoes and cultivated manner he could pass for any one of them. Sitting in Bullers' small offices in a well-appointed converted town-house in London's smart Sloane Street, what he does not look like, curiously enough, is the head of a company specialising in film-editing, meat-processing and giftware. Neither does he resemble the chief of a business that has not paid a dividend to its shareholders since 1989 and is losing money.
Born in Scotland, this charming, urbane man - he is a member of the Garrick Club - qualified as an accountant in 1969. Then, in the early '70s, when his grandfather died and left him some money, he switched tack. Married with one son, he gave up a safe job as assistant to a chief accountant in England: 'I decided to invest in myself; I went to university.' He moved back north, read for a Law degree and served his apprenticeship at the Scottish Bar, finally qualifying in 1980. But accountancy and the Bar were not enough. He shrugs his shoulders. 'I had an inkling to try the City,' he says.
Cunningham joined the quotations department at the Stock Exchange, approving and checking the interminable documents issued by companies seeking a public listing. He proved immensely popular with City corporate finance departments. He was in charge of companies 'S to Z' - it has been claimed, tongue in cheek, of course, that some firms changed their names to benefit from his more pragmatic approach to listing requirements.
In 1989, he left the Stock Exchange for the corporate finance department of Banque Indosuez. 'I enjoyed it - unfortunately they decided to close the department.' Next stop was Williams de Broe, the stockbrokers, in 1990. 'I was asked by the chairman if I wanted to join them. I said I would - if I could be a consultant. They asked me to take on problem companies in their corporate finance department.' Cunningham, the recovery specialist, was born.
One company followed another, or, as is the way at this end of the market, one directorship often coincided with another. As the lists shows, his involvement did not guarantee success: Essex Furniture, which was not in trouble and where he remains a non-executive director; Farringford, where he stayed eight months; Waterglade International, which went into liquidation in November last year, and CRP Leisure, whose latest results showed increased losses.
Along the way there was a parting from Williams de Broe: 'I was not able to give them enough time,' he explains. According to sources within Williams de Broe, the firm was not unhappy to see him go. 'He was not our sort of man.' His departure left a bitter aftertaste because, for some time afterwards, the firm continued to think he was still claiming to be a consultant and had to tell him to stop.
Before Bullers, the biggest job on Cunningham's burgeoning list was Waterglade International. In August 1992, Waterglade, a property developer that had ridden the back of the '80s commercial building boom, was on its knees. Despite the wizard moves that will have echoes for Bullers' shareholders - asset sales, debt and share restructurings, a proposed rights issue - one group of shareholders was unimpressed by Cunningham's performance, with half-yearly losses rising from £957,000 to £2.37 million. This dissident group stoked the flames by alleging the board charged £961,000 in administrative expenses in the first half of the year when turnover was just £172,000. And despite the company's continued poor performance, Cunningham and his fellow directors, it emerged, were also entitled to share a six-figure sum in compensation for loss of office.
In September 1994, Cunningham and co resigned, after which the new management claimed to have uncovered a worse situation than previously realised, including higher debts, among them a Customs & Excise claim for £800,000 in outstanding VAT. In November the company was wound up, with, according to the directors, little chance of funds reaching shareholders.
While Waterglade was taking its course, Cunningham was invited in October 1993 to take over at another 'vehicle' - Bullers. Then concentrated mainly on giftware, Bullers was losing £1.4 million a year on turnover of £2.4 million. 'I saw a cheap vehicle; I saw in the giftware division the ability to make good profits,' he says. On taking charge, Cunningham said he wanted to expand and diversify, to turn the company into an industrial group with three or four divisions. One of those divisions was to be media and the acquisition he had in mind was a TV and film-editing facility in London's Soho - Wisemans.
A client from Cunningham's days at Williams de Broe, Wisemans had been in poor health for years, going into receivership in 1991. Later that year, Brian Wiseman, its founder, and Studio Capital, the equipment-leaser, bought the business back from the receiver and renamed it 'Tablesound trading as Wisemans'. However, the reconstructed Wisemans had the same weakness as before: it was making an operating profit but not enough to clear the cost of leasing its machinery. Cunningham was called in, in August 1993, when Wisemans was £2.5 million in debt - mainly to Studio Capital. He struck a deal with the company: he would be paid nothing but if he saved the business he would be given a third of it.
On his subsequent arrival at Bullers, 'I had the idea of putting them together because I saw how I could instantly make a profit for Wisemans and at the same time I was bringing a business into Bullers that the City would support.' Obtaining City approval for a reconstruction of the old Bullers 'would be difficult because there was no sexy story - giftware would take time to put right'. But with Wisemans, 'we could end up with a giftware division and a media division that was already making profits'.
His involvement in both companies was declared to Bullers shareholders. Nobody complained - they were swayed by the argument that once Wisemans' borrowings had been erased and its interest payments removed, Bullers would be left with a cash generator in a growth sector. In a complicated transaction Bullers effectively paid £1 million in cash to write off Wisemans' Studio Capital borrowings and buy the leased equipment. It then paid 8.2 million shares to acquire Wisemans, with up to a further 10 million shares to be paid if Wisemans hit certain profit targets by December 1994. The three Wiseman shareholders, including Cunningham, thus stand to receive more than six million shares each.
Only one voice has been raised - that of Niall Duggan, Bullers chief executive. Soon after the deal went through he resigned, believing the purchase was unattractive: Wiseman was in bad shape (at the time of the acquisition its most recent accounts showed losses after interest of £700,000 on turnover of £3.3 million). Although he did not sign the listing particulars, Duggan's objection was not revealed until a High Court hearing over his severance pay, in June last year, four months after Bullers bought Wisemans and he had resigned. It was not made known to shareholders at the time. Cunningham and his finance director, David McGurk, maintain that was because his opposition was not known at the time: Duggan's concern, they say, was only raised after he left.
Simultaneous with the Wisemans deal, Bullers investors were asked to subscribe to new shares. Stock was also made available to other investors - including Cunningham, who bought £300,000-worth at 11p - and two of Bullers' largest creditors, Marmara Bank from Turkey and Barclays, agreed to convert their loans into equity. Not one to do anything by halves, Cunningham accompanied the Wiseman deal and the reconstruction with another acquisition, of Robinsons Quality Meat Processors for £1 shortly before the receivers were about to be called in. A cynic would say that the synergy between this meat business and the rest of Bullers lies in their common experience of keeping the receivers at bay. Not so, says Cunningham. Robinsons may have cost £1 but Bullers has injected £300,000. However, an insurance claim against the builder of its new factory, which he expects to win, is also for £300,000, 'therefore I hope to get it for nothing'.
With Robinsons' market presence in hamburgers and a popular new stir-fry range - not to mention tip-top premises - he confidently expects to sell the company for 'three-quarters of a million'. (The shareholders, he says, 'will quite like that. From the day I bought it I wanted to sell it'.) Under new EC rules, meat factories must be brought up to scratch. Meeting those requirements is costing other meat traders £500,000. Here, he beams, is a company with a brand new factory that will have cost Bullers £1. 'We spied an opportunity, we don't see ourselves as butchers but as financiers.' Of all the bullish phrases uttered by Cunningham that is probably the most telling. He may be chairman of a company that makes gifts and fire surrounds, processes meat and runs a shop, but he could just as easily be making ball-bearings or selling books. 'What I bring in are the skills of financial reconstruction and the ability to negotiate with bankers, shareholders and creditors. I have a reasonable ability to pick good management and organise capital.' The next step took place in August; shares were placed with Jim Slater, the legendary multi-millionaire financier and investor, and funds managed by his son, Mark. Interestingly, Slater's investment broke his pattern of not holding a declarable stake in a quoted company since the collapse of Slater Walker in the '70s. Within weeks of the announcement of the placing, the shares more than doubled from around 10p, hitting a peak in early October of 27p: the rights issue at 20p was announced later that month.
Slater had approached Bullers after reading a bullish report in a stockbrokers' circular forecasting earnings per share this year of 2.7p. Slater's shares, purchased in a private placing, cost him 11.75p. 'I bought in at a multiple of under five, which is extremely attractive,' says Slater.
In Slater, Cunningham would appear to have a significant fan. 'I like the areas the company is in - it's a diversified conglomerate' is Slater's way of explaining the corporate strategy. If it were left to Slater, 'and I will use my best endeavours to persuade David Cunningham so,' meats would be sold, leaving giftware and media. Giftware has high margins and, Slater believes, great potential.
In Bullers' case, claims Slater, 'there is no limit as to its eventual size'. He has every confidence in Cunningham and is not put off by Waterglade: 'The key point to bear in mind is that he went in before it failed, not later - he was not a cause of the problem.' Slater, like Cunningham, says he is in Bullers for the long term. His energies are concentrated on growing giftware: new product lines are being developed, and franchises are lined up with Harrods, the Ritz and Savoy hotels.
Competition, at the Bullers high-quality end of the market, Cunningham claims, is minimal and the Japanese and Americans cannot get enough of high-quality 'English' giftware. Expansion overseas is next on the agenda, with an acquisition or two, in this country.
He has some money to spend. The recent rights issue raised £1.26 million - of which £500,000 will go towards repaying borrowings. The rest will be used to fund acquisitions. Having bought Wisemans less than a year ago, he is now talking about demerging it. He feels, prompted possibly by Slater, it has no synergy with enamel boxes and figurines. If a substantially debt-free Wisemans is sold, he is looking for at least £5 million, if not more. 'I'm pretty certain Wisemans is worth £10 million.' Until Bullers publishes a full year's results, it is difficult to see how this eclectic collection of previously loss-making businesses can justify Cunningham's and his shareholders' optimism. In the meantime, he is being paid £60,000 a year and has a three-year contract until March 1997, after which his services are subject to six months' notice either side. With more than six million shares from the Wisemans deal (assuming the December targets are hit), Cunningham's total shareholding exceeds 9 million at a cost of around £375,000. Taking into account his warrants to subscribe for 2.7 million shares at 11p, his paper profit at 20p per share (the rights issue price) is £1.7 million. Quite an incentive to keep Bullers out of the corporate graveyard.