Kathmandu directors reject Briscoe's 'opportunistic' offer, say shares worth $2.10-$2.41

Thursday 6th August 2015

Kathmandu has urged shareholders to reject a takeover offer from Rod Duke's Briscoe Group, saying it is opportunistic and undervalues the outdoor clothing and equipment chain, although the shares are still languishing below the implied value of the offer.

Kathmandu hired Grant Samuel to prepare an independent assessment of the offer. The implied $1.80 a share offer, based on a one-month volume weighted average price of Briscoe shares of $2.88, is below Grant Samuel's assessed value of $2.10 to $2.41.

Kathmandu's shares rose 1.2 percent to $1.73 and have slumped 50 percent in the past 12 months. Briscoe shares, which are illiquid because of Duke's majority holding, increased 1.4 percent to $2.94 and have gained 3.6 percent in the past year.

In addition, the offer implies an enterprise value to Ebit (earnings before interest and tax) multiple of about nine times, which is "substantially below" the median ratio for comparable transactions involving vertically integrated retailers of 12.1 times, it said. Based on forecast 2016 performance, Kathmandu would contribute more than half of the combined group's earnings, it said.

The takeover offer was opportunistic because it came after a weak 2015 performance by Kathmandu, characterised by aggressive stock clearances, smaller margins and increased costs. Kathmandu also incurred one time costs including investment in its UK brand.

Briscoe, which is controlled by managing director Rod Duke, is offering Kathmandu shareholders a mixture of cash and scrip in the enlarged company, at a rate of five Briscoe shares for every nine Kathmandu shares as well as 20 cents.

Duke already owns 19.99 percent of the target company. His stake would be watered down to 55 percent from the 80 percent of Briscoe he currently owns. The deal would see Duke enter the Australian market, where Kathmandu currently earns most of its income.

Kathmandu also gave guidance for the 2016 year, including an 11 percent gain in sales to $455 million, a partial recovery in Ebit to $48.2 million from $33.7 million in 2015, and a widening margin of 10.6 percent from 8.2 percent.

BusinessDesk.co.nz

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