Troubled Midlands china maker Royal Doulton is in talks about a takeover by rival Waterford Wedgwood. Stoke-on-Trent-based Doulton, which said in March that it would close its last UK factory in the face of stiff overseas competition, said it was in advanced discussions with Waterford regarding a possible offer. The two companies said the talks had moved to the stage where Waterford had already studied Doulton's books, but certain matters remained to be resolved. "Consequently there can be no certainty that a formal offer will be made," a statement from the two firms said. "A further announcement will be made in due course." The two companies said any formal offer was expected to be 12p in cash per Doulton share - valuing the firm at about £40 million. Waterford linked the move with a proposed fully underwritten rights issue of approximately 100 million euro (£69.4 million), a 53.8 per cent discount to Wednesday's closing price, to pay for the bid. Shares in Doulton rose by 34 per cent, or 2.88p to 11.25p, on the news. "Subject to resolution of these matters, the board of Royal Doulton intends to recommend such an offer," the statement said. Waterford Wedgwood currently holds a 21.16 per cent stake in Doulton, while Waterford's chairman, Sir Anthony O'Reilly, and deputy chairman, Peter John Goulandris, own a further 3.99 per cent of the shares between them. Doulton said last month that it had arrested a prolonged sales decline following an overhaul. It said like-for-like revenues were down only one per cent in the six months to June 30 after burgeoning overseas demand offset lower wholesale volumes. Operating losses narrowed to £5.7 million from £7.8 million, benefiting from a restructuring which led to 1,100 job cuts and the closure of 42 shops. The group announced it is to shut its Nile Street factory in Burslem, Stoke-on-Trent, by mid-2005 after "staged" redundancies affecting 525 workers. However, Doulton said it would set up a new 20,000 sq ft factory and visitor centre in Festival Park, Stoke, to make limited edition and high value Minton and Royal Doulton brands. Chairman Hamish Grossart said industry overcapacity was likely to remain in the second half and this would put prices and margins under pressure, although the firm expected to be in a strong competitive position by early 2005. Rising interest rates, slow growth in salaries and a potential fall in consumer confidence could also deter shoppers from buying its goods. Sir Anthony said: "The possible acquisition of Royal Doulton would transform Wedgwood. The benefits of such a deal are immediately apparent. "With Royal Doulton's restructuring largely completed, we could add Royal Doulton's revenues to our top-line sales without greatly increasing our costs. This would increase the profitability of the combined businesses. "I've said costs equal to, but I believe it could be lower than, the People's Republic of China. I think two-and-two will make five." Waterford said the acquisition would enable it to integrate Doulton with minimal disruption and lay down the foundation for improved profitability. In a trading update, also issued yesterday, Waterford said turnover in the six months to September 30 was disappointing at 356 million euro (£247 million), with like-for-like sales coming in at five per cent below the corresponding period last year. It attributed some of the fall in sales to the fact that the company had refocused its retail distribution in the US. Group chief executive Redmond O'Donoghue said: "While trading performance in the six months to September 30 was behind last year, we are confident that planned marketing initiatives and the previously announced cost saving measures will lead to a reversal of this trend." | 
