Pacific Finance headed for trade sale

Eric Watson's Pacific Retail Finance appears headed for a trade sale rather than a public float.

Pacific Retail Group flagged the possibility of a listing for its consumer finance arm in December, saying that it would retain a majority stake.

But observers expect a scoping study by investment bank Macquarie, a draft of which is due to be considered by the Pacific Retail board today, will recommend a trade sale of the business as the preferable outcome.

It is, however, likely the report will suggest keeping the float option open - if only to keep pressure on trade buyers.

Observers say banks will advise a trade sale because Pacific Retail Finance is small relative to its competitors and a float is likely to be a half-way step to an eventual trade sale.

Pacific Retail has a loan book of around $270 million. This compares with industry leader UDC, which has a $2 billion loan book, according to industry research group FundSource.

There is also concern about the "Watson factor" - the theory that after a spate of negative publicity the link to the high-profile entrepreneur is no longer a selling point and may, in fact, turn off investors.

One source said Watson was regarded as a "polarising personality". Watson told the Herald on March 18 that he had not heard the concept from any of the investment bankers he had met.

"We haven't done an IPO recently to find that out. Is it a problem? I don't know," he said.

Pacific Retail chairman Maurice Kidd confirmed the draft report from Macquarie was complete but said yesterday that he would not comment on its contents until it had been presented to all the board members.

In December, Pacific Retail said an IPO would reflect "the standing of the finance group as a substantial business in its own right".

The finance arm was then said to be on track for a pre-tax profit for the year to March 31 of $28 million to $30 million. It has more than 200,000 customers.

Alliance Capital Management analyst John Norling said he would not be surprised if the report recommended a trade sale.

The local finance sector appeared ready for consolidation so there was logic there for a buy-out by one of the other big players.

They might be able to unlock value through rationalisation that would not be realised with a general float, he said.

Another possible reason for opting out of a public float was the relatively poor performance of the market during the past two weeks.

Potential bidders include GE Capital, AGC, F&P Finance, or private equity players from Australia.

Pacific Retail's main other businesses are UK appliance retailer PowerHouse and lingerie company Bendon. The finance group is made up of three subsidiaries: Pacific Retail Finance, Pacific Retail Services and Montreal Financial Services.