Watson moves to mop up PRG after latter gives up on Powerhouse

Entrepreneur Eric Watson moved today to mop up PRG Group minorities after the company gave up on troublesome British retailer PowerHouse which was then put into administration.

PRG, 81 per cent owned by Mr Watson's Logan Corp, decided at a board meeting last evening it would withdraw financial support to PowerHouse and the PowerHouse board then called in the administrators.

Simultaneously, but unrelatedly, Logan, a unit of Mr Watson's Cullen Investments, obtained agreement from fund manager AllianceBerstein to buy a 12.3 per cent PRG stake held on behalf of Axa Asia Pacific and others.

That then triggered a full takeover offer pitched at $1.22 per share -- 33 cents, or 21 per cent below the PRG's last traded price and well below the $2.25 per share offer four years ago.

The deal to purchase the 12.3 per cent stake means Logan can compulsorily acquire the remainder of PRG, as it will have over 90 per cent.

AllianceBertein's John Norling said Alliance was not aware of the PowerHouse decision when it agrees to sell, although it was not a surprise and was factored into the price.

The price was negotiated following a KPMG valuation report, factoring in the PRG's current assets and the underlying value of PowerHouse.

Cullen Investments chief operating officer Liz Style said that even if the independent valuer puts a higher value on PRG, Logan will not lift its offer.

The takeover offer will open on August 12 and close on September 11.

Complicating things, is the fact PRG shares have been suspended since July 10 because it failed to file an audited set of its March accounts.

Logan said it would move to compulsory minorities as soon as practicable.

Independent directors Jock Irvine and George Broooks will commission an independent evaluation of the offer, but Mr Irvine admitted the takeover was a foregone conclusion.

"It's a strange situation that we are having to do a report at all," he told NZPA.

"If it (the valuation) is dramatically different, that will be something for the offeror to consider."

PRG was unable to finalise its accounts because the final audit and valuation of the sale of its finance arm, PRG Finance Group, to GE Finance and Insurance in January for a reported $145 million has not been completed. PRG said its profit from that sale was $75m.

PRG's unaudited accounts showed it lost $13.1m in the March year, mainly due to the continued poor performance of PowerHouse.

PRG bought PowerHouse in 2003, then also in administration, for $48m and has had repeated setbacks trying to put it back on its feet. In May, PRG claimed PowerHouse would break even this financial year.

But PRG said a new review of PowerHouse's financial projections showed it was no longer sustainable despite rigorous cost cutting.

Calling in an administrator was the responsible course, Mr Irvine said.

Administration differs from receivership in New Zealand. The administrator acts in the interests of all creditors.

"There is no doubt that PowerHouse has presented considerably more challenges than we initially anticipated," Mr Irvine said.

The trading environment became tougher, prices fell and PowerHouse failed to secure a significant market share despite being the number three in its market in Britain.

Mr Irvine would not say how much extra money PRG had pumped into PowerHouse, except to say it was considerable.

PowerHouse reported a March year Ebita loss of £17.6m ($54m) for the year from an £18.8m ($58m) Ebita loss last year.

Mr Irvine said it was still possible PRG would recover some equity from PowerHouse but the decision of Alliance to quit suggests analysts at the fund manager doubt there will be any substantial turnaround.

PRG's last share price before it was suspended was its lowest in over five years and half the value reached in September 2002. Ms Style said there had been little liquidity in the shares and the last traded price for a very small parcel was not necessarily a reflection of true value.

At $1.22, PRG is valued at $76.25m.

- NZPA