Kathmandu directors have urged shareholder to reject Briscoe's takeover offer.
Kathmandu directors have urged shareholder to reject Briscoe's takeover offer.
Briscoe Group's Rod Duke has hit back this afternoon and says Kathmandu's response to its takeover bid was "high on rhetoric and low on substance".
Kathmandu chairman David Kirk said today that the takeover offer was rejected "overwhelmingly" because it under-valued the outdoor clothing and equipment chain, although he also questioned Duke's lack of experience running a vertically integrated retailer.
Kathmandu's independent assessment of the offer, from Grant Samuel, valued the shares in a range of $2.10 to $2.41, above the implied $1.80 a share offer from Briscoe, based on a one-month volume-weighted average price of Briscoe shares of $2.88.
Duke, in a statement this afternoon, said that 144-page document felt "high on rhetoric and low on substance."
"The question remains why the market would believe Kathmandu is so confident that its self confessed internal and external challenges are over.
"Kathmandu's catalogue of excuses and ambitious assumptions highlights the enormous execution risks inherent in achieving the company's forecast targets in contrast to the certainty, experience and track record of delivery which are available to Kathmandu shareholders by accepting the Briscoe offer," Duke said.
Briscoe, which is controlled by managing director Duke, is offering Kathmandu shareholders a mixture of cash and scrip in the enlarged company, at a rate of five Briscoe shares for every nine Kathmandu shares as well as 20 cents.
Rod Duke (pictured) said in a statement this afternoon that the 144-page document rejecting his takeover bid felt “high on rhetoric and low on substance.” Photo / NZPA
Duke already owns 19.99 per cent of Kathmandu, having acquired it at $1.80 apiece from institutions happy to take profit on shares that were languishing as low as $1.25 in June, before the offer was made.
Kathmandu's catalogue of excuses and ambitious assumptions highlights the enormous execution risks inherent in achieving the company's forecast targets
His stake would be watered down to 55 per cent from the 80 per cent of Briscoe he currently owns in a deal that would see Duke enter the Australian market, where Kathmandu currently earns most of its income.
"This would be highly accretive to Briscoe from day one while being a significant dilution for Kathmandu shareholders," Kirk said this morning.
"Briscoe has no experience running a vertically integrated retailer - it's very different from selling other people's brands. But I'm not trying to be too judgemental given the offer so under-values the business."
Kathmandu stores predominantly sell house branded products, which are made to the specifications of in-house designers. Duke wasn't immediately available to comment on the rejection of his bid.
According to the Grant Samuel assessment, the offer implies an enterprise value to Ebit (earnings before interest and tax) multiple of about nine times, which is "substantially below" the median ratio for comparable transactions involving vertically integrated retailers of 12.1 times, it said.
Based on forecast 2016 performance, Kathmandu would contribute more than half of the combined group's earnings, it said.
The takeover offer was opportunistic because it came after a weak 2015 performance by Kathmandu, characterised by aggressive stock clearances, smaller margins and increased costs.
Kathmandu also incurred one-time costs including investment in its UK brand.
Kathmandu also gave a trading update that showed it expects Ebit to have slumped to $33.7 million in 2015 from $64.3 million last year, before recovering to $48.2 million in 2016.
Sales are seen climbing to $409.4 million for the 2015 year from $392.9 million, and rising to $454.6 million next year.
Its earnings margin, which probably halved to 8.2 per cent in 2015, makes some recovery in 2016 to reach 10.6 per cent.
Kirk said Kathmandu has had "a good winter sale period and has been able to demonstrate strong growth in margins."
