Signet shareholder warns against PE bid

Investec, a minority shareholder in Signet Group, a UK jewellery retailer currently being stalked by two private equity firms, has said in a letter that the firm could achieve private equity-style benefits by remaining a public company.

Signet Group, a UK-based jewellery retailer, could oppose a take-private bid by private equity firms Apax Partners and Kohlberg Kravis Roberts.
In a letter to the Financial Times, Alistair Mundy, a fund manager at Investec, which holds around a two percent stake in Signet, referred to concerns that private equity firms buy public companies too cheaply before taking them private, maximising their value through refinancings and asset sales before returning them to the public markets.

Mundy: investors should reject bid at rumoured level

“The benefits accrued from the asset sales and working capital improvements following the Debenhams deal can be easily replicated by the sale or securitisation of Signet’s loan boad and a reduction in inventory,” said Mundy in the letter. He added that institutional investors could reject any offer and “at the rumoured level we believe they should”.
Apax and KKR released a statement last week confirming that they had “jointly undertaken a preliminary analysis of the company and that their analysis included the consideration of a possible offer for the company”. At the time, the private equity firms were reported to be considering a £2.3 billion (€ 3.4 billion) bid for the company.
Signet Group shares were trading at 113.75 pence at 10am BST today, giving the business a market cap of £1.741 billion.
Neil Darke, a director at Collins Stewart, said that a bid of around 125 pence per share probably “still wouldn’t cut it” with institutional investors, but pointed out that a number of recent deals, such as De Vere Group and ABB Ports had seen bids go higher than analysts had initially predicted.

The speed of Debenhams return to market the amount of money made by the private equity owners has put public shareholders on warning.

Neil Darke, director, Collins Stewart

Darke said that the move by Investec follows a number of public company rejections of private equity takeover bids earlier in the year, such as HMV, ITV, Kesa Electricals and GUS: “A number of these bids were rebuffed in a fit of pique, especially after Debenhams returned to the market, where there was a feeling that if private equity wanted to buy, they must be doing it on the cheap. The speed of Debenhams return to market the amount of money made by the private equity owners has put public shareholders on warning.”
However, public shareholders feel that reducing working capital and maximising value for assets is not exclusively the domain of private equity firms, added Darke.
The Centre for Management Buyout Research, in association with Barclays Private Equity and Deloitte, reported in March that a number of failed public-to-private bids by private equity firms had dented UK buyout figures in the first few months of the year.
Tom Lamb, co-head of Barclays Private Equity, told PEO at the time that private equity firms had become a victim of their own success. “There is the embarrassment factor of recommending selling the company and then two years later finding out it was you that got mugged as the new owners have doubled profits, got their money back and are now looking at a flotation. Nobody wants to be the corporate M&A equivalent of the man who turned down the Beatles.”