Maiden faces £2m bill after court case

Maiden, the outdoor advertising group put up for sale after breaking banking covenants last year, faces a £2m bill after losing a high court case.

The ruling deals a blow to Maiden's hopes of securing private equity backing for a management buyout or striking a takeover deal with a larger trade rival such as Viacom, Clear Channel or JC Decaux. The group referred to the case in a statement on December 20, when it announced the covenants breach. Maiden said it would report an operating loss for the current financial year, due in part to "ongoing litigation".

Maiden did not give further details. However, a court ruling made on the same day ordered Maiden to pay nearly £2m to Media Initiatives Group, which acted as a sales agent for Maiden but had its contract terminated in September 2004. The bill comprises £1.27m that MIG claims it was owed following the contract termination, £300,000 to cover MIG's legal costs and about £300,000 in interest relating to money owed on the contract.

Both sides will attend a hearing in London today at which a judge will determine the amount of interest that Maiden must pay MIG. The near-£2m bill does not include Maiden's legal costs, which are thought to match MIG's £300,000, bringing the total to just under £2.3m.

Maiden has been forced to seek a buyer or backing for a management buyout after reporting its second covenants breach in three months. Britain's fourth largest outdoor advertiser appointed N M Rothschild to assess "future strategic options" after admitting that a litany of financial setbacks would push it into an operating loss for 2005. As well as the financial consequences of the case, Maiden said it had withdrawn from a contract with the Irish state rail operator worth £80m and trading in November and December had fallen "significantly short of expectations".

The group, which has debts of £39m and a market value of £44m, reported an operating profit of £3.2m on revenues of £92m in 2004. Although Maiden has not guided the market on the size of the 2005 operating loss, market expectations are pointing to a loss of up to £5m at the pre-tax level and a deficit of £2m at the operating level, excluding the cost of the court case.

Rothschild has sent out non-disclosure agreements to companies that have expressed an interest in Maiden. It is understood the bank has yet to issue financial information to interested parties. Maiden said last month it had received several approaches following the announcement that it had been put up for sale.

One trade bidder has expressed an interest so far: Viacom Outdoor, a subsidiary of US media group Viacom. Clear Channel and JC Decaux are thought to have concerns about the cost of taking on Maiden's contracts, which include a £450m deal to run poster campaigns in 17 mainline rail stations including London's King's Cross and Liverpool Street.

A typical outdoor advertising contract - which can last up to 10 years - involves the bidder offering to split the revenue from the billboards with the site's owner, which can include a minimum revenue guarantee and a sizeable upfront payment.

Maiden's management owns more than 50% of the group's equity, leading to speculation that a management buyout is the most likely survival route for the business. Private equity groups are understood to have expressed an interest in backing a buyout.