Briscoes intends takeover

Brokers are expecting Briscoes to move to a full 100% takeover offer for struggling Kathmandu....
Brokers are expecting Briscoes to move to a full 100% takeover offer for struggling Kathmandu. Photo by Gregor Richardson.
Briscoes has launched a surprise intention, of more than $360million, to take over struggling leisure and sports retailer Kathmandu, with an offer of cash and script to be made to all shareholders.

Briscoes (BGR) announced yesterday it had reached a 19.9% stake in Kathmandu (KMD), a threshold at which it has to state its intentions.

While KMD shares rose 25% to $1.73 on the offer confirmation, they started the day at $1.39, about 54% down on their price a year ago.

BGR built up its stake from 4.99% with a further 14.91% bought from institutional shareholders at $1.80 per share, a premium of 29.4% on KMD's opening price of $1.39 yesterday.

If all the 201 million BGR shares on issue were bought for $1.80, it would total more than $362.2million.

Briscoes managing director and 75% shareholder Rod Duke said BGR intended to lodge a ''takeover notice imminently'' for KMD, which would offer all shareholders both cash and script, but he did not specify if it would be a 90%-100%, conditional, takeover.

''We each have strong and recognisable brands that I see as complementary,'' Mr Duke said in a statement, before declining to make any more comment on the takeover.

KMD said in a brief market statement it had had no contact with Briscoes and would not make further comment about the imminent takeover offer at this stage.

Last year, KMD was hard hit by the toughening economic conditions in Australia, a warmer-than-usual winter and wetter summer in New Zealand and weaker-than-expected shopper response to Christmas and New Year sales, leaving it with higher stock inventories and a declining gross profit margin.

For its half year to March, KMD booked a $1.8million loss, compared with the previous year's $11.4million profit, while its previous full-year profit of $42.2million was down slightly on the previous year's $44.2million.

For its year to January, the Briscoes group after-tax profit rose 17% to a record $39.3 million.

Craigs Investment partners broker Peter McIntyre said Mr Duke's offer had ''caught the market by surprise'', but he was recognised as an astute businessman and manager.

''There's no point being opportunistic at the top of the market,'' he said of Mr Duke's offer while KMD's share price was down more than 50% on a year ago.

He believed it likely Mr Duke would go for a full 100% takeover, some of which would be funded by script issue, which might be attractive to long-term KMD investors who might not otherwise be attracted by getting $1.80 per share.

While Mr Duke would have synergies with existing distribution and quality product access, Mr McIntyre said KMD could yet be ''in for a shake-up'', which could include management and organisation restructuring and scrutiny of less profitable outlets.

Forsyth Barr broker Suzanne Kinnaird described the takeover as ''opportunistic'', given there was ''deep value'' in KMD, in that it could recover from its present weak trading period.

''Briscoes has a large cash balance and has been looking for acquisitions for a long time,'' she said.

She estimated Briscoes had spent about $70million attaining its 19.9% stake, taking its full-year 2015 cash in hand from about $90million to around $20million now.

''At this stage we are unsure if it will be a partial or full takeover offer, although we expect it is more likely to be the latter,'' Ms Kinnaird said.

A profit warning in February this year wiped $100 million off KMD's market capitalisation. Its then $1.48 per share was 52% down, or by $1.66, on a year earlier.

Ms Kinnaird said KMD had a strong brand, a valuable loyalty database and a market-leading position, which were ''all strong building blocks in a retail model''.

On the question of synergies between the two retailers, Ms Kinnaird saw ''limited synergy opportunities between the two'', aside from head office synergies, and it was unlikely to be the primary reason for the takeover offer.

simon.hartley@odt.co.nz

 


Briscoes plan

The offer

At $1.80 per share, Kathmandu has a market capitalisation of $360million, with estimated debt of $60million. Briscoes has a market capitalisation of $630million, at $2.90 per share, and after spending about $70million on the 19.9% Kathmandu stake, has about $20million cash in hand.

Briscoes (BGR)
80 shops

46 outlets: Briscoes Homeware and Living & Giving. $337million sales full year to January.34 outlets: Rebel Sport. $170million sales full year to January. Total $507million sales.

Kathmandu (KMD)
157 shops

At March, Kathmandu had 157 stores open. Target this year 180 outlets in New Zealand and Australia, including 11 new premises. Sales for full year to last October, $392.9million.


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