European Leisure likely to seek removal of auditors

European Leisure is expected to demand the sacking of the auditors of Waterfall Holdings, the leisure group, which has launched a hostile £41 million sterling (€61.2 million) bid for it. The group is expected to call for the dismissal of Ernst & Young, Waterfall's auditors, as part of an investigation into alleged irregularities in the company's 1998 accounts, according to a report in yesterday's Sunday Telegraph. European Leisure may be gearing up to requisition an extraordinary general meeting of Waterfall, in which it has a 24 per cent stake. The latest move represents further hostility between European and Waterfall and follows European's recommendation of a lower all-share offer from Allied Leisure. Waterfall hit back at European last week when it expressed surprise at European's rejection of its bid, which "represented a premium of over 36 per cent to the recommended offer from Allied Leisure".

It also asked why European was "so intent on continuing to recommend an alternative proposal that offers significantly less value to European shareholders and why it is still urging them to accept an inferior offer without delay".

Although Waterfall's offer is higher than Allied Leisure's, European has questioned the real value of Waterfall's shares. "The directors of European have serious concerns about the value of these shares and about Waterfall's underlying financial position", the company said. It has also claimed that Waterfall's profits were boosted by exceptional items.

The Sunday Telegraph said it understands that European wants to use an e.g.m. to probe a £300,000 credit received by Waterfall as part of a renegotiated beer contract. Ernst & Young acted as auditors to European until a year ago and European may now demand the appointment of another firm of accountants to examine Waterfall's 1998 accounts.

A Waterfall spokesman is quoted in the Sunday Telegraph article as saying: "It is a bit rich, since they have been a significant shareholder for some time and these comments have not been made previously." Waterfall has already attacked European's accounting practices, notably the asset write-down of £13 million last year. It plans to bring forward its interim results in an attempt to allay doubts over its finances. Waterfall has not yet presented its formal offer document. When European acquired its stake in Waterfall last year, it was seen as a prelude to a takeover bid. However, the Waterfall board was distinctly cool to the shareholding. When Waterfall made an indicative offer to the much larger European, it was seen as an attempt to frustrate the proposed merger of European and Allied Leisure. The Irish Takeover Panel gave Waterfall a deadline of April 7th to announce a firm offer, or withdraw. The all-share offer was made on the deadline date.