Brierley lifts takeover bid for Kirkcaldie to within board's worst case scenario

Tuesday 26th April 2016

Veteran corporate raider Ron Brierley has increased his takeover offer for Kirkcaldie & Stains after his earlier offer was rejected by the former retailer's board.

Brierley lifted his offer to $3 a share from the $2.75 he offered in March and extended the closing date by a month to June 12, according to a statement to the NZX.

Brierley's Mercantile NZ vehicle is the third-largest shareholder in Kirkcaldie, which operated the iconic Wellington department store that is now closed for redevelopment as the first New Zealand branch of Australian retailer David Jones. Brierley is looking to secure the residual assets of Kirkcaldie, whose ultimate value depends on the cost of exiting remaining property leases.

In a letter to shareholders about his new offer, Brierley said the director's initial low scenario of $2.99 a share was "now very relevant as a result of the Petone lease deal falling over and Kirks being on the hook for a payout of nearly $1.5 million over the next seven years".

"Liquidation is more than a year away and, if it becomes controversial, costs could skyrocket above the $100,000 provided," Brierley said. "We sympathise with those shareholders who have a warm affection for this fine old iconic Wellington company, which would be severely disrupted if Kirks was forced into liquidation."

Kirkcaldie stock was trading at $1.559 before Brierley first flagged his takeover offer at $2.75 apiece on Feb. 26. The shares last traded at $3.13, more than the $2.20 price Brierley paid to increase his stake in late 2015. Mercantile currently owns 9.9 percent of the company.

On April 1, Kirkaldie directors recommended shareholders reject Brierley's offer, which they said was too little. The board calculated a high and low scenario for the company's wind up, with the high scenario paying $3.49 per share and the low scenario paying $2.99 per share, both higher than Mercantile's initial offer.

Kirkcaldie has three leases to get out of which will determine whether the payout is in line with the high or low scenario - the Petone lease, the Pantry lease and the Thorndon Quay lease. The $2.99 low scenario was calculated assuming the company would have to pay out the full terms on all three leases, which in Petone extends until April 2023 at a cost of about $1.4 million, making it the company's most significant ongoing liability.

The company had entered into a conditional transaction for its Petone lease which would have brought that liability to an end when Brierley first made his offer, but that was unsuccessful. On April 18, after that transaction failed, the board reiterated its recommendation that shareholders not accept the offer, and said it was optimistic it could secure a transaction "which will substantially mitigate the company's exposure under the Petone lease."

It also said it had entered into a conditional deal for the Pantry lease with the landlord and prospective tenant currently in negotiations. If that transaction is successful the board's low scenario will increase to $3.08 per share, ahead of Brierley's new offer.

(BusinessDesk)

Maurice Greenough, Investment Advisor from Equity Investment Advisers notes, "Brierley is an old fox and seems determined to acquire more of Kirkcaldie & Stains. Previously in the past he has been very successful but more recently has taken a breather. He has the experience and knowledge of the past and he hopes to complete some profitable deals. The question is, are Sir Ron’s skills and experience relevant now?"

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