British Firm Claims It Was Conned in U.S. : Ferranti Faces Insolvency After Purchase of Pa. Munitions Firm

Ferranti International Signal PLC, Britain’s third-largest defense contractor, has been conned out of millions of dollars in false or inflated contracts since it purchased a Pennsylvania-based arms manufacturer two years ago, a company spokesman said today.

Analysts said the scandal could leave Ferranti insolvent. One analyst predicted a rescue bid, perhaps led by the British government, and the probable removal of top management who approved the acquisition.

The scandal has raised questions of whether Ferranti can survive as an independent company. Defense contractors Thomson-CSF of France and Daimler-Benz AG of West Germany are reported to be the front-runners attempting to acquire Ferranti.

On Friday, Ferranti, whose share trading was suspended a week ago as its financial troubles became public, said it suspected “significant irregularities” in overseas contracts of ISC Technologies and called in a new accounting firm, Coopers & Lybrand, to investigate.

Ferranti believed that it had been misled about the value of contracts by International Signal and Control Technologies, the Lancaster, Pa., company it acquired for $654 million in November, 1987.

Losses of $233 million to $311 million are being quoted in British newspapers, but Ferranti did not release any estimate.

“The position of the company is very unclear. The present management’s position is untenable,” said Rob Collins of Kleinwort Benson Securities. “It is debatable if the company is solvent.”

Collins said Ferranti bought the highly secretive ISC without investigating “black contracts” with undisclosed Middle East countries and the U.S. Department of Defense.

“They basically bought the business blind,” Collins said.

An investigator who was called in said: “Everyone in sight is going to be sued over this. Ferranti appears to have been seriously conned.”