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Arthur Barnett bid falls short of company's latest asset backing

By Chris Hutching

Friday 16th August 2002

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The $1.40 a share price revealed yesterday for a full takeover of Arthur Barnett shares by two of its directors is in the upper range of what was expected by brokers but still below the $1.80 net asset backing.

Over the past 15 months the share price has fluctuated from a high of $1.10 in October 2001 to a low of 61c in July 2002 before recovering over the past couple of weeks with last trades at 97c.

The share-price recovery in the two weeks before the takeover announcement is being investigated by the Securities Commission. The full cost of the takeover would be about $9.5 million for 6.7 million shares held by 1900 shareholders.

The in-house takeover is being mounted by chairman Trevor Scott and director Julian Smith. Mr Scott owns 6.7% via the T D Scott Family Trust. He is also chairman of Fraser Smith Holdings, associated with Otago Daily Times publisher Mr Smith, which has 46.4% of the shares. Jarden Custodians is another big shareholder with 10%.

Their intimate knowledge of the company means an independent appraisal of the bid may be difficult. One of the attractions for Messrs Scott and Smith is the $14.2 million in tax losses available to the company to be applied against future trading revenue. They have accumulated in recent years because the company overstretched itself in the development of the Meridian Centre in central Dunedin in the mid-1990s and incurred high debt.

More recently, the centre enjoyed a lift in pedestrian traffic and a 6% increase in revenues and may be in a better position to begin paying higher dividends again.

At the last annual profit result for the year ending August 2001 the company posted a $508,000 after-tax profit (down 22% on turnover of $22 million, up from $21 million previously the year before). No dividend was paid.

But the company may be turning the corner. The latest half-year result to February 2002 saw total revenue of $15 million ($14.4 million previously) and a bottom-line surplus of $629,000. A dividend of 3c a share was paid.The last annual report reveals non-current assets of $62 million and current assets of $8.6 million, with liabilities of $45 million.

But the company also has commitments in respect of an issue of capital bonds. Investors took up $18 million worth of the bonds paying 10.5% while the company subscribed for $4 million. Mr Scott said one of the reasons for making the bid was that it would be easier to recapitalise the company.



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