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Gleeson offloads loss-making construction division

A management team led by Gleeson's construction managing director Martin Smout has formed an MBO vehicle- backed with equity provided by the Gleeson Group.
A company called CHOQS 448 has been set up by Martin Smout and another director Peter Stone to buy the division - which is expected to lose more than £34 million.

Gleeson building produced a turnover of £308 million and lost £6 million in the year to June 30, 2004. It loss another £16.6 million in the six months to December 31 2004 and is expected to incur further heavy losses in the second half of the year.

Gleeson announced at the time of its interim results in March that it was pulling out of construction because the low margins do not justify the risks.

The board looked at selling the operation externally but could not find a buyer and closing the business would have risked escalating project overrun costs.

Gleeson Group will fund the MBO to the tune of £14.7 million as it could not find a third party to put up the money.

The group will retain liability for all the existing contracts. At completion of the deal Gleeson will invest £1.1 million in CHOQS 448 and provide a loan worth £2.5 million - at an interest rate of 24 per cent per year.

It will invest up to £7.1 million in CHOQS 448, including £3.6 million in cash on completion and a further £3.5 million in respect of partly paid shares.

It will pay a management charge of £1.7 million a year to CHOQS 448 and up to £500,000 a year in relation to a supply agreement with Speedy Hire. A further £2.9 million will be shelled out in relation to a number of ongoing contracts.