PRG investors tick Watson plan

By Deborah Hill Cone

Friday 21st May 2004

The number two and number three shareholders in Pacific Retail Group say they are happy about the major changes at the company ahead of next week's annual result.

There are only three substantial security holders in the listed company: Eric Watson's Logan Corporation (76.5%), Axa Asia Pacific (11.26%) and Francis Securities (5.07%).

PRG announces its full-year result next week, which is expected to show the impact of acquisition of Powerhouse in the UK, which cost $47 million to buy but is likely to need a further $28 million in cash injections.

It is no secret that Watson has long wanted to acquire 100% of PRG but any suggestion the number two and number three shareholders are being squeezed out is denied by them.

"I feel less like that now than I have previously," Andrew Bascands of Alliance Capital Management, which manages Axa's investment in PRG, said.

"We have been more included on general discussions and decision-making than we have ever been."

Speaking from Cannes where he was buying some films, Francis Securities shareholder Peter Francis said he was happy with the decision to spin off Noel Leeming, Bond & Bond and Big Byte into a separate listed vehicle.

PRG stock, which was trading at $2 at presstime giving it a market capitalisation of $146 million, was undervalued and this initiative would help redress that.

"[The IPO] will get more than the market cap of the whole business. They will be realising some value at least that's how he [Watson] explained it to me," Francis said.

He was "quite relaxed" about the investment in UK retail chain Powerhouse.

"It's high risk, high reward. I probably would have done the same deal myself," Francis said.

There would be huge benefits if they can successfully turn the Powerhouse company around.

Bascand said he was pleased PRG had strengthened its board with the appointment of chief executive Steve Smith and directors Greg Muir and Michael Stiassny, who will sit on the board of the new spinoff vehicle.

"There's a real intention to maintain PRG as a listed vehicle."

Bascand said they were comfortable with the Powerhouse acquisition even though as a minority shareholder they had no control over the decision.

"It's not so much Eric but the Peter Halketts of the world. We are backing Peter Halkett."

Bascand said if people met Watson they might get the impression he was simply a big-picture thinker but he had the ability to get good advice.

Bascand expected next week's result to show the benefit of tax losses from the Powerhouse listing.

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