Affinity steps up hostile bid for Colorado

Affinity Equity Partners is advancing its hostile takeover of Australia-listed Colorado Group with a direct approach to shareholders on 8 August.

Affinity Equity Partners, a pan-Asian private equity firm, will provide full details of a A$4.50-per-share takeover offer for Colorado Group, a listed Australian clothing retailer tomorrow. The offer values Colorado at approximately A$430 million ($320m; €256m).

Affinity already holds 19.9 percent of Colorado shares, and needs to secure another 70.1 percent of the retailer’s shareholding interest before it can take proceed with the buyout.

Previously, Affinity had approached the board with a $4.68-per-share offer, in exchange for the board’s recommendation for shareholders’ acceptance, and two-week’s due diligence, Stuart Barton, a spokesman for Affinity said. The offer was not accepted, and that prompted Affinity to take a less friendly route to acquiring Colorado.

On July 31, Colorado board issued a statement advising shareholders to reject Affinity’s “inadequate and highly conditional” offer. The board has also referred to conditions set by Affinity as ‘nonsense’ in an earlier statement to the Australian stock exchange.

The Colorado board is expected to issue a target statement two weeks after Affinity dispatches a Bidder’s Statement to shareholders, Barton said. The target statement, to be provided by an independent party, will recommend a fair company valuation.

“But the target statement is seldom fully independent since the Board is engaging the expert,” said a source close to Affinity.

Brett Sutton, a director at Affinity said: “We believe our all-cash offer grows more attractive with each passing day. No alternative bidder has emerged, and the general retail environment is definitely getting tougher with higher inflation and interest rates curbing discretionary spending.”

“It’s time for the shareholders of Colorado, the true owners of the business, to make a fairly simple decision, either quickly crystallise a significant and certain return or continue to take a risk on a turnaround by the current board.”

Affinity is banking on the acceptance of institutional investors, who make up some 60 percent of Colorado’s shareholding, to accept its offer, Barton said.

Colorado, on its part, has recently appointed a new chief executive in addition to several new general managers. It said in the 31 July statement filed with the exchange that a fundamental flaw in Affinity’s conditional offer has not been removed nor modified. “The bid contains a condition relating to Colorado’s first half 2006/7 earnings which cannot be fulfilled.”

Barton confirms that if Colorado’s earnings lag the condition of $14 million, the offer will no longer be in effect, unless Affinity decides to waive that condition.

Shareholders will have to make a call ahead of the expiry of Affinity’s offer on 7 September, before Colorado is scheduled to release its earnings results, he added.

So far this year, two attempted public-to-private transactions, both by private equity firms, in Australia, have failed. The targets were Pacifica Group, an automotive components maker, and Wattyl, a paint company.