Violet Hue
Tchenguiz is the last man standing in the race for Somerfield.
Another one bites the dust. Amid talk of a high-street bloodbath in the run-up to Christmas, Somerfield has joined the lengthening list of retailers opting to leave the glare of the stock market.
Of course, the announcement surprised no one. Somerfield has been on the block since February, when predatory Icelandic investor Baugur expressed interest in the supermarket group. Baugur has been a catalyst for the trend toward privatisation in the retail sector, buying the Big Food Group, Goldsmiths, Hamleys, Oasis and an array of others in recent years.
Baugur joined forces with a consortium led by private equity firm Apax Partners, but the Viking ran into trouble over the summer, when its founder and chief executive Jon Asegir Johannesson was charged with embezzlement in Iceland. Most of the charges have been dropped, but his troubles spooked the consortium, which now includes Barclays Capital and property investor Robert Tchenguiz.
Violet Acquisitions, the consortium’s bidding vehicle, is offering 197p for each Somerfield share, valuing the group at £1.082bn. Violet was virtually assured of victory after London & Regional, the property group run by Ian and Richard Livingstone, bowed out last week. United Cooperatives withdrew from the bidding back in June.
The price represents a 21 per cent premium to Somerfield’s share price on 8 February, the day before Somerfield received its first expression of interest, and a 37.5 per cent premium above the group’s average closing price over the previous six months, according to Violet’s proposals posted yesterday.
Investors appear to believe that Violet’s deal is the best they’re going to get; Somerfield shares rose by 1.75 per cent to 194.75 yesterday, remaining below the offer price. The shares ran as high as 215p earlier this year, with investors hoping a bidding war might materialise. Fund manager M&G has pledged its 10.65 per cent holding to the consortium, but that commitment is non-binding should a better offer materialise.
Now that the “who” is cleared up, the big question is why? What is the sense in taking over a struggling food retailer in a market increasingly dominated by a mammoth Tesco?
Tchenguiz is a renowned property financier, who is planning to increase the value of some of the stores by developing residential space above them. The income stream from the properties if structured in such a way could be refinanced. It could be a good deal for Violet as well, allowing it to remove debt from the books.
“The aim is to squeeze as much as he can out of the property assets,” one property expert said.
But Tchenguiz insists that Violet has no plans to transfer ownership of Somerfield to leaseholds. “There is nothing magical in the properties,” he told CityA.M. “No properties are moving out of the company.”
Instead, Violet will accelerate the existing rehabilitation plans. “We can do things much quicker than you can in a private company,” Tchenguiz said. Management will remain largely intact after the deal completes: chief executive Steven Back and finance director David Cheyne will retain their roles, as will executive directors Katie Bickerstaffe, Martin Oakes and Gordon Wotherspoon.
Retail entrepreneur John Lovering, chairman of Debenham Retail Services will become chairman of Violet Group. Lovering failed to buy Somerfield back in 2003, bidding 120p a share.
Citigroup and Lehman Brothers are advising Violet Group, while Deutsche Bank and Dresdner Kleinwort Wasserstein are acting for Somerfield.
Violet will continue to refit Somerfield shops and will most probably “rebrand” a number of Kwik Save stores to Somerfield formats, Tchenguiz added. Kwik Save, acquired in 1998, has been a drag on Somerfield, say analysts. Many expect Violet to sell a large number of the 494 Kwik Save stores, retaining the more than 800 Somerfield stores.
Tchenguiz’s partner Apax maintains a good record in taking retailers private. Clothing chain New Look reported strong sales growth immediately after Apax helped it return to private hands in April of 2004 But Somerfield’s rivals are among the fiercest in British retailing: Tesco appears unstoppable, while Sainsbury is beginning to show signs of life after years of underperformance. Tchenguiz is confident Somerfield can keep up. “We’re not scared of the competition,” he said.
