Yellow Sheds could fetch $90 million

The Warehouse will get about $90 million for its Australian Yellow Sheds, Deutsche Bank analysts believe.

The discount retailer's Australian operations are widely expected to be bundled with the discount variety retail operation of Miller's Retail and sold - with expectations a deal could be announced as early as next week.

Australian press reports have suggested the combined business could fetch between A$200 million ($213 million) and A$300 million with the Australian Financial Review reporting a "strong rumour" that a joint bid by private equity funds Castle Harlan Australian Mezzanine Partners (CHAMP) and Catalyst Investment Managers will be the winner.

In notes released this week, Deutsche Bank analysts said they estimated Millers would fetch a value of about A$150 million for its discount variety businesses and The Warehouse would get around $90 million for its Australian operation.

They believe that if the Yellow Sheds met their full potential the business would have a value of around $180 million.

That is not what they think it will sell for.

"Even in the event that the Yellow Sheds are divested, we do not expect the buyer to pay for the full potential," the analysts said.

The Warehouse did not disclose the value of its investment in Australia. Phil Jamieson, the company's manager of corporate affairs, reiterated the firm would inform the market when it had something to say.

David Spry, an Australian retail analyst with brokerage FW Holst, expects the winning bid will come from private equity firms rather than other retailers such as The Reject Shop, which he believes are only interested in selected sites.

"Certainly they're not in a position to command a premium price - they'd probably acknowledge that," he said of The Warehouse.

"They've made a mistake and they should just get out."

The Warehouse's foray into Australia began with the purchase of Crazy Clint's and Silly Solly's in 2000. It now has 122 stores and produced a $5.8 million loss in the 2005 financial year, from a $36.5 million loss the previous year.