GE Sues Bankers Trust in Britain

LONDON - GE Capital Corp., the financial arm of General Electric Co., is suing Bankers Trust New York Corp. and other advisers in a suit involving one of the biggest management-led corporate buyouts ever to go sour in Britain.

GE claimed that it was misled when it invested $120 million in the $1 billion 1989 buyout of troubled Magnet PLC.

A suit was filed against Magnet and Bankers Trust, which led the buyout; the accounting firm Arthur Andersen, which advised Magnet's management; and Ernst & Young, Magnet's auditors.

GE said in the action, scheduled to be heard in the High Court in London, that its $120 million loan should rank higher in terms of seniority for repayment.

A spokesman for Airedale Holdings, the renamed parent of Magnet, said: "The company considers GE's claims to be wholly unjustified."

He added, "At a meeting of the company's bankers, it has been agreed that they will support the company in its vigorous defense of these actions."

The management acquisition of Magnet was financed by several levels of mezzanine, subordinated, and senior debt, ranked for repayment in the event of the company's liquidation.

GE's $120 million ranked behind the first tranche, $630 million of debt provided by lenders headed by Bankers Trust. GE is seeking a higher ranking.

The suit said GE had been misled but did not say by whom.

A statement issued by GE Capital briefly confirmed that the company had started legal action against Bankers Trust, Airedale, and the accountants over the buyout.

Magnet was GE's first major investment in Britain, but the home improvement company has since suffered from the recession and high interest rates. The firm, struggling under $1 billion in debt, has already been refinanced twice by its bankers.

Last month it reported revenue of $280 million for the fiscal year that ended in March and an operating loss of $40 million.

In an unrelated announcement Monday from Stamford, Conn., GE Capital said it had acquired a $1.1 billion-asset leasing subsidiary from Chase Manhattan Corp. The deal nearly doubled the size of GE's vendor financial services division.

The acquired unit, based in Canton, Mass., was formerly known as Chase's technology equipment leasing division. It will now be called VFS Information Technology Services.

Terms of the deal were not disclosed.

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