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Duke says Kathmandu offer 'fully reflects' value of shares, target's forecasts 'highly optimistic'

Friday 7th August 2015

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Briscoe Group managing director Rod Duke says after studying Kathmandu Holdings' response to his takeover offer he has concluded the price "fully reflects the value of Kathmandu shares".

Kathmandu shares rose 1.1 percent to $1.77, below the $1.80 implied value of Duke's offer and lower than the $2.10 to $2.41 range given in the target company statement. The stock closed at $1.39 on the day before he emerged with 19.9 percent of the company. It had sunk as low as $1.25 from as high as $4.05 last year in the wake of an unexpected first-half loss.

“Our offer remains on the table and is open for acceptance until the 17th of September, unless extended in accordance with the Takovers Code," Duke said. "We believe that Kathmandu is a great brand and has good products, but by its own admission is failing to execute basic retailing fundamentals. Nothing in Kathmandu’s Target Company Statement provides confidence that management is able to deliver a turnaround and achieve its lofty earnings forecasts."

Kathmandu chairman David Kirk said yesterday the takeover offer from Duke's Briscoe Group was rejected "overwhelmingly" because it under-valued the outdoor clothing and equipment chain. Kathmandu forecast improved profitability for 2016 but Duke reiterated today that the target company may struggle to reach its targets, calling them "highly optimistic".

"As Kathmandu’s largest shareholder, its latest performance gives us little confidence in its 2016 full year forecast, which in our view are based on ambitious assumptions that come with enormous execution risks," Duke said.

He said Kathmandu's response "has been typical of these processes", where the target company has been struggling but says it is worth more.

"Ugly sisters turn into beautiful princesses when someone looks at them sideways," he said of Kathmandu's response to his offer.

The two sides have been conducting something of a war of words that is also typical of hostile takeovers. Kathmandu's Kirk yesterday questioned whether Duke had the skills to manage a vertically integrated retailer, which has its own inhouse designers and a single brand, compared to Briscoe's homeware and sporting good shops, which sell many brands.

But Duke says Kathmandu has been failing at retailing 101. "By Kathmandu’s own admission in the target company statement, its key failings relate to the fundamentals of retailing, including confusing pricing decisions and repetition of non-innovative promotional activities over key promotional periods in FY15, poor inventory management and operating cost overruns. It is these key pillars of effective retailing which are Briscoe Group’s strengths and a key contributor to its strong performance over a number of years."

Briscoe, which is controlled by 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. Some institutions have said the current offer doesn't include enough cash and leaves Duke in control with an estimated 55 percent of the enlarged company.

Briscoe shares last traded at $2.96 and have declined 0.3 percent this year.

 

 

 

 

BusinessDesk.co.nz



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