The Warehouse buys chain

The Warehouse. Photos by Peter McIntosh.
The Warehouse. Photos by Peter McIntosh.
Bond and Bond.
Bond and Bond.
Noel Leeming.
Noel Leeming.

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 Sheds' performance."

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 stake.

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.


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