The option is one of three Edinburgh-based direct mail specialist Waddies has considered over the past six months. Chief executive Iain Pittman would only say that it had looked at a group with operations in the M62 and M25 areas, involvement with a Plc company, and an independent investor.

Last October Waddies enlisted Livingstone Guarantee, the corporate finance expert, in its bid to expand through takeovers. In June it had said it was looking for acquisitions around the M62 and M25 areas.

Ormolu fits the bill with printing operations in Manchester (Trafford Press) and London (Greenaways), plus Edinburgh-based Pillans & Wilson, the assets of which were bought by Ormolu in August 1999 from the receivers.

Ironically, the Ormolu link comes three years after Waddies and Pillans & Wilson called off a planned merger. Pillans & Wilson subsequently fell into receivership. Ormolu chief executive Bob Hodgson was unavailable for comment.

Waddies is also negotiating with its staff to cut its wage bill without hitting basic earnings. It has proposed cuts to overtime and other rates, and said the alternative would be to implement a 10% cut for all direct or hourly paid employees.

In a letter to staff, Pittman said the firm had lost money in the first quarter of 2002 and was 1.37m down on its sales targets.

We have lost sales with a few customers but the biggest problem is the margin we are able to get, he said.

Prices negotiated through internet-based auctions had been exceptionally keen, he added, but increased volumes would allow Waddies to minimise their impact.

The firm is taking the action despite order volumes rising by over a quarter on the same period last year, while it has also already cut 15% of its overhead and wage costs. We need more to be very competitive and allow us to invest, added Pittman.

He told PrintWeek that Waddies had historically been a high payer, with wages 10-15% above the levels of its Scottish competitors.

GPMU members have rejected proposals through two ballots, the first by 36.65% to 36.12% of papers returned, despite the local union branch backing the proposals. The firm is now awaiting confirmation of a third ballot date.

Pittman said one or two staff from indirect functions, which relates to areas such as customer service and sales, had approached the firm about its offer of voluntary redundancy. But he didnt envisage making any compulsory redundancies yet.

Story by Gordon Carson