New Zealand Rich Lister Rod Duke and his Briscoe Group will have to fork out more money if they are to win over fellow Kiwi retailer Kathmandu Holdings (KMD) which yesterday told its shareholders to reject the $324 million takeover offer.
Kathmandu’s board described Briscoe’s scrip and cash offer as “highly opportunistic”, saying it is timed to exploit Kathmandu’s recent share price weakness and “isolated” issues that contributed to the very sharp fall in profits for the year to July.
Kathmandu directors gave a brief outline of the 2015 result – a 52.6% fall in net profit to $NZ20 million ($A17.8 million) in 2015 – in yesterday’s rejection statement, but claimed earnings and sales will recover strongly in the coming year.
In a target statement sent to the Australian and New Zealand stock exchanges yesterday, Kathmandu said Briscoe’s offer did not reflect the underlying value of the company.
An independent assessment by Grant Samuel valued Kathmandu shares between $NZ2.10 and $NZ2.41, well above the implied $NZ1.80 value of Briscoe’s offer. Briscoe Group is offering five Briscoe shares for every nine Kathmandu shares plus NZ20c cash.
KMD 1Y – Kathmandu mounts defence of “highly opportunistic” bid
Kathmandu chairman David Kirk said in the statement the offer would still be earnings accretive for Briscoe shareholders if Briscoe paid $NZ2.41 – the top end of the independent expert’s range.
"Briscoe’s offer is manifestly inadequate and does not reflect the value of Kathmandu’s shares," Mr Kirk said.
"The board believes the offer is intended to create value for Briscoe shareholders at the expense of Kathmandu shareholders.
"It comes opportunistically off the back of an isolated period of internal and external challenges experienced by Kathmandu in the period leading up to and including the third quarter of 2015.
“I am confident that management can deliver strong results that will, over time, result in superior value for Kathmandu shareholders,” Mr Kirk said.
Mr Kirk told AAP his company had little to gain from being part of the Briscoe Group, a homewares retailer and parent company of Rebel Sport in New Zealand.
Kathmandu has higher growth and higher margin expectations than Briscoe, and is well established in Australia and New Zealand with strong global expansion potential, Mr Kirk said. “Briscoe on the other hand is a lower growth, lower margin, just New Zealand business,” he told AAP. He said it doesn’t make any sense to put these two companies together. But the fundamental reason for rejecting Briscoe’s offer was its value, he said.
And Goldman Sachs seems to have sunk the offer at its current value. Fairfax Media reported that Goldman Sachs Asset Management’s head of Australian equities Dion Hershan says he had no intention of accepting Briscoe’s current offer for his 13% stake.
“The Briscoe bid is highly opportunistic," Mr Hershan told Fairfax. “We understand why they are interested in the company but the bid price and structure we’d characterise as being grossly inadequate – we didn’t have to review the 140 page target statement to arrive at that conclusion. We’ll be rejecting the offer," he was quoted as saying.
Goldman Sachs will block the offer if it votes against it, preventing Briscoe from achieving 90% minimum acceptance above which it can compulsorily acquire the remaining shares and so on to integrate Kathmandu into its business.
Rod Duke owns 72% of Briscoe, meaning he will end up with 55% of the merged group. He has said he will try to list the merged company on both the NZ and Australian stock exchanges. He will need total control of Kathmandu to do that.
While profits halved in 2014-15 to $NZ20 million, Mr Kirk said yesterday he expects earnings to rebound by around 43% in 2015-16, underpinned by an 11% surge in sales, higher gross profit margins and fewer one-off costs.
Kathmandu’s Australian shares rose more than 9% to $1.65.
Last night Briscoe’s Mr Duke rejected Kathmandu’s statements and those of chairman Kirk
He questioned the assumptions behind the profit forecast, which was included in Kathmandu’s target statement, saying Kathmandu’s response was "high on rhetoric and low on substance".
“There is a lot of blue sky in their 2016 forecast," he said.
"Kathmandu’s catalogue of excuses and ambitious assumptions highlights the enormous execution risks inherent in achieving the company’s forecast targets in contrast to the certainty, experience and track record of delivery which are available to Kathmandu shareholders by accepting the Briscoe offer."
