Waterford Wedgwood may be gearing up to try to block an £18.9 million sterling (€30.9 million) emergency rights issue by the troubled British ceramics group Royal Doulton after increasing its stake in the company to more than 20 per cent.

Waterford disclosed yesterday that it bought another 4.7 million Royal Doulton shares at 11p sterling each and this brings its stake from 14.9 per cent to 20.6 per cent. Royal Doulton will hold an extraordinary general meeting of shareholders next Friday to approve a £19 million three-for-one rights issue which would have reduced Waterford's previous 14.9 per cent stake to less than 4 per cent unless Waterford invested £2.8 million sterling to take its rights. Royal Doulton will need 75 per cent approval from its shareholders for the rights issue to go ahead.

A spokesman for Waterford would not add to yesterday's announcement to the Stock Exchange, nor say whether Waterford intended to buy more Royal Doulton shares in the market ahead of Friday's e.g.m.

But market sources said there was no logic in Waterford increasing its Royal Doulton stake in the market if that stake was going to be subsequently heavily diluted by the rights issue.

"I can't see any other reason for what Waterford is doing," said one market source.

"They obviously don't want to have to pay up in the rights issue, so they seem to be trying to block it instead," he said, adding that the next obvious question is what happens to Royal Doulton if this emergency rights issue is blocked.

Royal Doulton has said that if the rights issue fails, then it will be forced to renegotiate its banking facilities and that the group was unlikely "to be viable".

The group's banks, led by HSBC, have agreed that if the rights issue is a success, they will provide new debt facilities of £30 million repayable in 2005.

The three-for-one rights issue is fully underwritten by Cazenove and sub-underwritten by a group of institutions which include some of Royal Doulton's existing shareholders.

Since Waterford Wedgwood first invested in Royal Doulton in November 1999, the British company has had a traumatic time and has suffered from fierce competition from overseas producers and heavy levels of overstocking.

In 2001, the group announced it would miss its deadline for recovery set for the end of 2002. Analysts believe that break-even is unlikely before the end of 2003.

When it announced its emergency rights issue, Royal Doulton announced plans to shift two-thirds of its ceramics production to Asia with the loss of 1,000 jobs and also closed down 100 retail outlets.

Waterford's investment in the company has been seen in the past as a defensive move to prevent the British company being taken over by competitors to Waterford's Wedgwood business.

Royal Doulton has a number of major brands including the eponymous china brand as well as others such as Minton and Royal Albert.

Waterford Wedgwood itself is expected to report a sharp fall in profits when it reports its results tomorrow.

Company broker Davy is expecting a 50 per cent fall in pre-tax profits from €79 million to €36 million.

The restructuring charge of €60 million is expected to produce a net loss for the year of €24 million.