Pacific Retail Group has turned its back on a planned public share float for its core retail chains, after agreeing to sell the businesses to Australian investment fund Gresham Private Equity for $138.5 million.
The conditional deal, announced before the sharemarket closed last night, will see appliance and computer chains Noel Leeming, Bond &Bond and Big Byte change hands next month. Together, they generated about half of PRG’s $1.01 billion operating revenue last year.
Under intense financial pressure from its loss-making British retail arm PowerHouse, PRG had been preparing to float the key New Zealand businesses – to the point of preparing newspaper advertisements for a public offer. PowerHouse was bought out of receivership at the start of this year and has lost $50 million.
However, PRG chairman Maurice Kidd said last night a trade sale to Gresham – whose biggest investor is diversified Australian investor Wesfarmers Group, headed by businessman Michael Chaney – was seen as best for PRG shareholders.
“It came down to certainty, basically,” he said. “I guess there’s always a level of uncertainty when you’re looking at going to the market.”
Though the sale had taken longer than expected, directors were satisfied with the result.
Plans for a public share offer had been suspended and would be formally scrapped when the deal with Gresham was completed. PRG shares closed unchanged last night at $2.10.
The deal, which is expected to be settled next month, is conditional on due diligence, regulatory approvals, buyer financing and clearance from PRG shareholders.
In addition to PowerHouse, PRG will keep its homeware business Living and Giving and lingerie manufacturer Bendon. It will retain its consumer finance group which, under a 10-year agreement, will provide point-of-sale financing to the three retail chains being sold.
Last night, analysts described the price paid for PRG’s flagship New Zealand assets as “respectable” – though the group was seen as a distressed seller because it needed money to develop PowerHouse.
Alliance Capital Management analyst John Norling said $138.5 million looked like a reasonable price. “I suspect it’s above what the market was valuing (the assets) at.”
Others said that though the price was good news for PRG, that did not necessarily mean its share price would rise significantly.
“It’s a case of what they’re going to do with the money,” one analyst said.
With the money destined for the British offshoot, uncertainty about PowerHouse’s future was still likely to dominate the share price.
PowerHouse has been a significant drain on PRG’s resources since its purchase for about $47 million last September. By the time PRG announced plans to spin off its New Zealand retail assets in May, it had provided PowerHouse with loans or guarantees of a similar amount. PRG acting chief executive Steve Smith said it would need tens of millions of dollars more capital.
The company said it would earmark funds received for the retail assets to meet the continuing working capital needs of PowerHouse, pay back the $14 million loan it was advanced by Pacific Retail Finance, and to reduce PRG’s own bank debt.
From stuff.co.nz