Shares in troubled crystal and china manufacturer Waterford Wedgwood tumbled yesterday on news of a profit warning and its intention to bid for rival china maker Royal Doulton.

Speaking to shareholders, Waterford Wedgwood chairman Sir Anthony O'Reilly warned that group sales had remained depressed in the six months to the end of September and would be 5 per cent below the same period last year. As a result, shareholders were told that its pre-tax profits for that period would be "significantly" below market expectation.

Shareholders also learned that Waterford Wedgwood was in advanced negotiations to bid for Royal Doulton, which owns the Royal Doulton, Minton and Royal Albert china brands. The group already holds a 21 per cent stake in the company and Sir Anthony and Waterford Wedgwood deputy chairman Mr Peter John Goulandris together own 3.99 per cent.

Sir Anthony said it has completed a due diligence examination of the company and if certain issues of concern to Waterford can be resolved it would proceed to make a cash bid, valued at £50 million (€72 million). The acquisition would be funded from a €100 million rights issue. Shareholders will be offered five new shares for every three held at a price of six cent each, a 54 per cent discount to Wednesday's price.

Waterford Wedgwood shares sank in trading in Dublin yesterday, shedding more than 30 per cent or four cents to nine cents on foot of the disappointing trading performance. The international ratings agency, Standard & Poor's, downgraded its rating for the company from B to B- based on the weaker earnings prospects, saying the outlook was negative. It also lowered the group's debt rating and warned that its already very weak debt-protection measures are expected to deteriorate further.

Sir Anthony said that while it was an understatement to describe Waterford's last three years as turbulent, he was determined to keep the company afloat. "By hook or by crook we will keep this ship afloat. I don't like what has happened over the past four years. As Bertie might say: 'a lot done, a lot more to do'. This is a new beginning" he said.

A number of shareholders voiced their scepticism about the motives behind the €100 million rights issue which could result in Sir Anthony and Mr Goulandris's stake in the group swelling to more than 30 per cent and put them in a position to make a bid for the company.

A company owned by Sir Anthony and Mr Goulandris will fully underwrite 70 per cent of the issue, with Davy Stockbrokers underwriting the remaining 30 per cent. Sir Anthony and Mr Goulandris own 25 per cent of Waterford Wedgwood.

Sir Anthony explained that if their stake were to appreciate to over 30 per cent they would ask shareholders to approve a "whitewash" that would effectively allow them to retain that shareholding without making a bid for the company.

He angrily rejected one shareholder's accusation that he was trying to take ownership of the company. "This is not a backdoor attempt to privatise the company. I feel it is ungrateful of you to suggest that," he said.

Sir Anthony said the object of the rights issue was for shareholders to take up their rights, adding that he hoped they would never get the opportunity to take up Waterford Wedgwood shares at six cent again. "This is a great company. Shareholders have been intensely loyal to the company. They deserve prosperity over the next five years."

Speaking after the meeting he said he had no interest in taking the company private.