Watson's second PRG takeover bid set to fail

By Deborah Hill Cone

Friday 3rd May 2002

Eric Watson

Logan Corporation's second takeover bid for Pacific Retail Group is set to fail unless 10.8% shareholder Alliance Capital Management agrees to sell and yesterday it signalled that was unlikely to happen.

Alliance Capital Management portfolio manager Andrew Bascand said this week's transaction for Eric Watson's Logan Corporation to buy Nick Gordon's 3.77% of PRG in return for him buying Mr Watson's shares in Advantage Group was a sound move.

'It's a pretty logical one - a clear swap. It's not changed our view," Mr Bascand said.

PRG offered $2.25 for Mr Gordon's shares and will now have to make this offer to all other shareholders.

Under the creep provisions of the Takeovers Code, Logan, which holds 73.17% of PRG, must make an offer to all shareholders.

Logan can only creep 5% in any 12-month period - if it acquires shares above that threshold it is obliged to make the same offer to all shareholders.

Mr Bascand said Alliance Capital Management likes to compare PRG to other small listed retailers such as Briscoes, which was very similar with a single shareholder which owned 75% of the company.

PRG's earnings momentum was "fantastic" - better than any other retailers by most measures - but it traded at less than half the value of Briscoes by most measures.

"We think the market has some uncertainty and concerns with [PRG's] majority investor. But no one's bothered to go and see him. Everyone's in love with Briscoes," Mr Bascand said.

Alliance Capital Management's stance was that PRG was a very positive investment story and majority shareholder Cullen Investments was not likely to destroy value.

"It's Eric Watson's biggest and probably most valuable investment," Mr Bascand said.

Analysts estimate Logan Corporation's average entry price for its total stake in PRG was $1.30, factoring in the sale of some shares at $1.68 to Mark Hotchin and Nick Gordon as well as the two million shares it picked up free as part of the one for nine bonus issue.

With PRG shares trading yesterday at $2.32, Logan is "well in the money," analysts said.

PRG has indicated it plans to raise $20 million through a rights issue to fund future acquisitions such as the purchase of lingerie marketer Bendon although no details have been released.

Mr Bascand said Alliance Capital Management would be interested in taking part in a rights issue if they have cash available and it is at the right price.

Meanwhile, analysts say PRG's finance book, operated as Pacific Retail Finance, is exceptionally strong.

It is said to have collected about $35 million in deposits through its secured debenture programme, launched in November.

Pacific Retail Finance offers hire purchase credit to consumers buying goods at its own retail chains as well as others including Freedom Furniture, Furniture City and Pack 'n' Pedal.

Mr Bascand said this was an area neglected by the major banks but it offered good margins.

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