Retail buyout targets enjoy mixed fortunes

UK retailers that rejected private equity advances in 2006 have failed to flourish on the public market.

Although the sector as a whole enjoyed better than expected performance over the Christmas period, the UK retailers that rejected private equity advances in 2006 have failed to prosper under the scrutiny of the public markets.

HMV, a music and books retailer targeted by UK private equity group Permira in March last year, continued to struggle. The company made a loss of £36.4 million (€55 million; $71 million) in the 26 weeks to October 28, compared with a profit of £200,000 last year, while sales at stores open at least a year fell by 5.5 per cent. Over the Christmas period, like-for-like sales were 0.8% down on the previous year. HMV said that Steve Knott, UK and Ireland managing director, was leaving the retailer by mutual consent.

Permira offered to pay 210p per share for HMV last year, but the bid was rejected as too low. At 13:00 GMT today, HMV shares were trading at 139.5p, down 32% from their one year high of 205p in January 2006.

ITV, the UK broadcaster, has also seen its shares slump since rejecting an approach from a buyout consortium comprising Apax Partners, the Blackstone Group and Goldman Sachs Capital Partners in March last year. Its shares are currently changing hands at about 109p, 21p below the 130p price on March 23.

The removal of chief executive Charles Allen and recent recruitment of Michael Grade from the BBC has buoyed optimism, causing the share price to rebound slightly. However, the broadcaster suffered another blow today when the Office of Fair Trading said it would investigate fellow broadcaster BSkyB’s recent purchase of a 17.9 percent stake.

Signet, which was the subject of interest from Apax and Kohlberg Kravis Roberts over the summer, appeared to buck the trend, reporting like-for-like sales growth of 5.9% for the nine weeks to December 30. However, much of this growth was driven by expansion in the US, where sales grew 7.9 percent. The UK chains, H Samuel and Ernest Jones, were disappointing in comparison, reporting just 1.7 percent growth on a like-for-like basis.

However, despite this underwhelming performance, there are few signs so far in 2007 that public companies are relaxing their attitudes to private equity.

JJB, a sports retailer that is reportedly the latest object of Permira’s attentions, struck a blow to any potential bid by reporting strong results for the Christmas season. It saw like-for-like sales increase by 6.3 percent in the 22 weeks to December 31, causing analysts to increase their profit forecasts for the year to £40 million. JJB, which has denied receiving a buyout approach, saw its shares rise 4p to 233p on the news.