Cash or bust for ailing Cedar

CEDAR, the software group worth £1.2bn last year, warned today that it would go bust unless it secured more money urgently.

The news is a bitter blow for Halifax Bank of Scotland, which is owed £38m and has pledged to support the company until talks aimed at keeping it afloat are completed.

Cedar chairman John Stanley said that the company had received an indicative takeover offer which directors believed would be pitched at 5p a share. This is less than half its share price yesterday and values Cedar at just £4.2m.

Chief executive Mike Harrison said the 5p offer is likely to be recommended by the management, with discussions with the potential buyer to be concluded in the next few days. Harrison said he thinks it is 'more likely' the management will agree on the offer.

Stanley said negotiations were also under way with other 'interested parties', which could result in additional finance being available.But he warned that Cedar did not have enough cash to survive for nine months and insolvency proceedings would be pursued by the directors if a deal was not struck soon.

The shares, trading at almost £15 early last year, crashed from 11 1/2p to just 3 3/4p after the statement. It is particularly devastating for institutions that paid £65m for Cedar shares last year after sub-underwriting a rights issue at 600p a share.

That issue was underwritten by Merrill Lynch, which resigned as Cedar's broker soon after. Cedar's financial position has deteriorated in the past year to the extent that it has net debt of £38.3m, against a £5.6m cash surplus in September last year. Stanley said that the firm depended entirely on the support of HBOS.

Cedar also revealed that it made a £33.8m operating loss in the six months to 30 September after suffering poor trading conditions in the US and Britain. That compares with a £4.7m-loss for the same period last year, a figure that was restated as a result of the firm's decision to adopt US accounting standards,which it had previously assured the market it would not do.

The pre-tax loss soared to £53.7m, compared with a £5.8m deficit previously, after a £16.2m exceptional charge associated with restructuring and goodwill write-offs. It also suffered losses on investments in early-stage software companies and from shares held to hedge the group's liability to National Insurance contributions.

Cedar said it had lost £10m of business in the latest period due to cancellations or customers experiencing financial difficulties. A further £9m of business had been deferred and recognition of £14m of revenue had also been deferred after the adoption of the new accounting policies.