Wesfarmers wants to keep Kmart.
The announcement and the follow up rebound on the wider market after the Fed rate cut went a long way to crowding out worries that Wesfarmers was having trouble refinancing $US4 billion in short term debt from the deal that saw it buy Coles Group last year, including Kmart.
That speculation has already seen the shares suffer a couple of bouts of weakness, with 42c fall Tuesday. But in the wake of the Fed’s decision yesterday, and the Kmart announcement, WES shares jumped $1.76 to close stronger at $37.10.
Wesfarmers said it would keep Kmart discount department store unit after completing a strategic review of the division.
That review was started after WES completed the Coles acquisition late last year. At the time, management indicated the preferred option was to retain the business, but they also explored a possible sale.
WES said yesterday that an improved performance by Kmart in the first half contributed to the decision.
Now there’s talk of $300 million being spent on tarting up the chain over the next five years, with 20 to 30 stores a year being refurbished. That will lift sales and profits as they always improve after a store his been revamped.
Wesfarmers managing director, Richard Goyder said in a statement the board was encouraged by the better performance of the Kmart business in the latter months of the first half of the financial year and the prospects of growth.
"The focus on an enhanced product offer and a better value proposition for customers will continue," he said.
"The Board will monitor performance over time, as it does with all Wesfarmers-owned businesses."
Buried in the announcement though was the news that the highly regarded Kmart (and former Target boss), Larry Davis, had decided to retire.
"Larry made an outstanding contribution to the Coles Group during his time at Target and, for the last three years, as the head of Kmart. On behalf of Wesfarmers I thank Larry for his drive and enthusiasm, which has been so evident during the brief period of our ownership of Kmart, and for the important part he played in the just-completed review. I wish him and Donna well on their return to the United States."
WES said that Mr Davis will leave the business at the end of next month. Mark Goddard, currently Kmart’s General Manager, Merchandise will become Acting Managing Director while a recruitment process is conducted to fill the position permanently.
There was no comment yesterday on the refinancing of the $4 billion of short term finance. Media reports claimed WES could refinance the money but only at a substantially higher interest cost of an extra 4%.
That could cost an extra $250 million or more a year, which would undermine the financial returns from Coles.
If WES can’t get the money at an economic cost, it could refinance around $2.5 billion and use a reactivated Dividend Reinvestment Program and higher earnings from its coal division (prices could rise by 150% this year) to tide it over.
More surprises from the tortured doings of the All Finance Group and its collection of satellites.
A day after revealing that it had to meet a $30 million margin call on a forex loan from the National Australia Bank, Rubicon Japan Trust (RJT) has revealed it has paid an $18.8 million margin call, without explaining the difference between the two figures.
RJT revealed it has been forced to dip into the money it was supposed to pay securityholders as a first half distribution to meet the outstanding margin call which followed the recent rise of the yen against the Australian dollar.
RJT, which is managed by the struggling Allco Finance Group said it had cancelled a five cent per security interim distribution to shareholders due to be paid on March 20.
The distribution will now be paid "when possible", Rubicon Asset Management said.
"As a result of being precluded from making a distribution to unitholders under the terms of its facility agreement, RJT was in a position to meet the margin call in full and has done so today," Rubicon said.
"The distribution that was due to be paid on March 20, 2008 has therefore been deferred and will now be paid when possible to unitholders who were on the RJT register on December 31, 2007."
Rubicon said it was still in the process of asking NAB to let it vary its foreign hedging arrangements to remove RJT’s exposure to further margin calls.
RJT also revealed it also wants NAB to extend the maturity date on a separate, revolving $60 million loan facility to March 31, 2009 from the current maturity date of 31 July, 2008.
"Although RJT remains in constructive discussions with NAB in relation to these proposed amendments, the terms have not yet been finalised and no agreement has been reached," Rubicon said.
As an intermediate step, Rubicon said RJT was in discussions with NAB about getting some breathing space through a forbearance letter.
The letter would see NAB hold off on exercising its rights under the hedging arrangements and the loan facility until the end of this month.
Rubicon said on Tuesday that RJT was also in negotiations with another lender about a funding package to give it sufficient funds to refinance its short-term debt.
The package would also allow it to progressively "buy-down" its foreign exchange contracts.
"No agreement has at this stage been reached," Rubicon said.
Two other property funds managed by Allco, Rubicon America Trust (RAT) and Rubicon Europe Trust (REU) have made similar announcements this week.
On Tuesday, REU revealed it had won a waiver from its margin lender Credit Suisse over an outstanding payment due Tuesday, but it has to pay an even larger amount by Friday.
(Being Good Friday that sh
