Briscoe managing director Rod Duke's holding of the enlarged group would shrink to 55.1 percent from about 80 percent of Briscoe, ensuring the retailing executive retains control.
The combined group would have net debt of $96.8 million, compared to Briscoe's debt-free balance sheet and net cash of $89.7 million in January.
Briscoe Group launched its full takeover of Kathmandu, offering 89.7 million of its own shares and $32.3 million cash for the 80.1 percent of the outdoor equipment and clothing chain it doesn't already own.
The offer amounts to $1.80 per Kathmandu share, based on $2.88 per Briscoe share, the homeware and sporting goods retailer said in its offer documents. It also amounts to a 2015 price earnings multiple of 15.5 times and an enterprise value to earnings before interest and tax multiple of 11 times, based on consensus estimates for Kathmandu's earnings, it said. The enterprise value of the offer is $418.2 million.
The deal would create an Australasian retailer with annual sales of about $913 million and a market value of $847 million, according to presentation slides. Duke's holding of the enlarged group would shrink to 55.1 percent from about 80 percent of Briscoe, ensuring the retailing executive retains control. The combined group would have net debt of $96.8 million, compared to Briscoe's debt-free balance sheet and net cash of $89.7 million in January.
Briscoe stock slipped 1.7 percent to $2.85 while Kathmandu dropped 2.9 percent to $1.70. There had been speculation Duke would have to make a higher offer for Kathmandu, whose shares traded above $4 last year. Kathmandu traded at $1.39 before Duke yesterday disclosed he had built a 19.9 percent stake in the target company and intended to make a full takeover.
Briscoe said merging with Kathmandu would add Australasian presence to its existing strong New Zealand footprint, giving the group more than 100 stores in each market. The company will seek a listing on the ASX assuming the deal, which it says will be accretive to Briscoe's earnings per share, is completed.
"The increased scale and breadth of operations generated by the combination would provide the opportunity to enhance the future competitive positions of both companies and would provide a platform for greater growth," Briscoe said. "The combined group would have a broader revenue and earnings base by product and location."
Under Duke's leadership, Briscoe stock has climbed 130 percent in the past five years as he drove sales growth. Kathmandu stock has slipped about 15 percent in the same period and has dropped 45 percent in the past 12 months. In February, Kathmandu said Christmas and January trading had lagged behind expectations, driving the retailer to a first-half loss.
"We see this as a great opportunity for both companies and their respective shareholders," Duke said. "Our intention is to bring the best practices from each organisation and leverage the scale of the combined group to grow earnings for the benefit of all shareholders. A larger company would also have a superior sharemarket presence, and should see more trading liquidity."
Kathmandu posted a $1.8 million loss in its first half, compared to a profit of $11.4 million a year earlier. Its gross margin shrank to 59.3 percent from 63.9 percent, with the most marked deterioration in Australia. Sales rose as the company aggressively discounted stock and acting CEO Mark Todd said in March that the company, which has 157 outlets, was slowing its pace of new store openings and that its full-year performance was dependent on favourable Easter and Winter sales.
Some 31 million Kathmandu shares changed hands yesterday, the biggest one-day volume since former owners Goldman Sachs JBWere and Quadrant Private Equity took the company public in 2009, selling their entire interest. The Kathmandu brand was originally built up by founder Jan Cameron.
