Opinion remained divided yesterday following the purchase of
consumer electronics chain Noel Leeming Group by The
Warehouse for $65 million, less than half of what the chain
was bought for in 2004.
Noel Leeming also includes the Bond and Bond chain.
Pacific Retail Group sold the Bond and Bond and Noel Leeming
chains to Australian private equity company Gresham for
$138.5 million in 2004.
Forsyth Barr broker Peter Young ''heavily questioned'' the
strategic rationale for the deal.
''Consumer electronics is a highly competitive industry where
Noel Leeming has the largest market share - around 25%.
"The industry is characterised by low margins which have been
under pressure in recent years,'' he said.
However, Craigs Investment Partners broker Chris Timms said
he could understand why the owner of the Red Sheds had bought
the Noel Leeming group.
''It makes sense as they wind out their product brands and
offerings. There are definitely synergies with the size of
the market. The Warehouse has a limited whiteware offering
and the acquisition will broaden that offering. Noel Leeming
has all the right brands,'' he said.
The Warehouse chief executive Mark Powell said that under the
terms of the agreement, the group would acquire the shares of
Noel Leeming for $65 million.
The deal went through yesterday.
''The group believes this acquisition will support its
transformation into New Zealand's pre-eminent non-food retail
business and support its ongoing strategy to improve the Red
The consumer electronics and home appliance sector had grown
substantially over the past five years. As people continued
to buy technology and entertainment products in an
increasingly ''connected world'', the sector would continue
to grow, he said.
Noel Leeming Group would operate as a separate trading
division with its own brand positioning and personality. The
Warehouse would retain Noel Leeming's management team.
Mr Powell said he was impressed with the performance of Noel
Leeming over the past three years.
''We believe in the future growth of this retail sector and
are pleased the current management team has agreed to stay
with the business."
The purchase was funded through existing debt facilities and
was expected to positively contribute to The Warehouse
Group's earnings per share from the outset, he said.
Noel Leeming was expected to contribute between $4 million
and $6 million to its first-half results - from the
acquisition through to January 27.
Mr Young said the Christmas-January period was a big trading
time, with financial performance heavily weighted to the
first half of The Warehouse's trading accounts.
Forsyth Barr was forecasting earnings before interest and tax
of between $7 million and $10 million from Noel Leeming for
the full financial year ending July. The Warehouse was
expected to report full-year earnings of $65.9 million.
The Warehouse had been subject to takeover speculation in
recent years with both Australian-based Woolworths and
Foodstuffs New Zealand taking shares in the group to prevent
each other from mounting a takeover without consultation.
Mr Timms said the opportunity for a takeover would remain
while both Woolworths and Foodstuffs kept their shareholdings
and while founder Sir Stephen Tindall kept his controlling
Woolworths had recently sold electronics chain Dick Smith,
which might indicate it was not interested in going back into
an area in which it was not comfortable.