Affinity launches hostile takeover in Australia

Affinity Equity Partners, an Asian private equity firm, is launching a hostile takeover of an Australian retailer in the first unsolicited public-to-private attempt by a conventional buyout firm in the country.

Affinity Equity Partners, an Asian private equity investor, has made an unsolicited bid to take over Colorado Group, an Australia-listed clothing retailer, having failed, after “almost three months” to reach an agreement with the company’s board, the firm said in a statement.

Affinity, which acquired 19.9 percent of Colorado’s shares three months ago, is now offering to acquire the remaining shares for A$4.50 a share.

The offer values Colorado at approximately A$430 million ($320m; €256m), or a 36.4 percent premium to the closing share price on 14 June 2006, the last day of trading before speculation of the impending takeover arose.

If successful, the transaction will be the first unsolicited, public-to-private deal executed by a private equity firm in Australia, a source close to Affinity said.

Last year, Allco Equity Partners, a listed activist fund that invests in leveraged buyouts, failed in its unsolicited public-to-private bid for Baycorp Advantage.

Shareholders have a month to decide whether to accept Affinity’s offer after the offer period takes effect in August, he added. A result is due at the end of September.

Weng Sun Mok, partner at Affinity said: “This all cash offer represents a compelling opportunity for Colorado shareholders (as the price represents) a significant premium to historical trading, and is at a premium of almost 10 percent to the average broker valuation.”

Brett Sutton, head of Affinity Australian operations said: “We believe that Colorado would be better placed to attempt a turnaround under private ownership, without the distraction of having to comply with listed company compliance requirements and thereby allowing the management to focus fully on the operation of the business.”

Some shareholders agree with Sutton, and have sold their shares prior to the latest offer. At least three institutional shareholders that include Perennial Value Management and Perpetual Trustees have sold their shares earlier, according to a local newspaper, The Sydney Morning Herald.

Under Australian law, Affinity needs to acquire a minimum 90 percent shareholding of Colorado before it can proceed with a compulsory takeover of the company.

The proposed acquisition has received underwritten debt financing commitments of A$310 million from Credit Suisse. The remaining will be funded by equity from Affinity Asia Pacific Fund II, Affinity said in the statement.

Minter Ellison is Affinity’s legal advisor for this transaction.

Affinity Asia Pacific Fund II closed on $700 million at the end of 2004. Affinity, which spun out of UBS private equity arm in 2004, manages over $1 billion and has made 13 transactions in five countries across since 1999. It has offices in Hong Kong, Singapore, Sydney and Seoul.