Beckett delivers setback to Sears recovery by blocking Freemans sale
Wednesday 19 November 1997
Publishing the MMC report Margaret Beckett said she accepted the report's findings that the link-up of the two companies would have given Littlewoods a dominant position in the agency mail order business. As City analysts had expected she concentrated on the possible impact on lower income groups which use agency mail order as a use of cheap credit which they may be denied from other sources such as credit cards and store cards.
She said: "This merger would have a direct impact on a substantial number of individual consumers; over 20 million people in the UK use agency mail order. Lower income groups make up around two-thirds of all agents and these groups account for around 70 per cent of all agency mail order sales."
Mrs Beckett said the agency market was highly concentrated and static. Together with the market leader Great Universal Stores, a merged Littlewoods and Freemans would have accounted for 80 per cent of agency mail order sales between them.
She supported the MMC's view that the deal could have reduced competition and led to a detrimental effect on choices, prices or the efficiency of the market. "Some benefits might be expected from the merger if it were allowed to proceed but the MMC's conclusion is that the benefits do not outweigh the adverse effects identified in the report," Mrs Beckett concluded.
The decision is a big setback for Sears' as it had hoped to use the proceeds of the Freemans sale to fund a pounds 400m-plus pay-out to the group's long- suffering shareholders. It will now seek to demerge Freemans within the next two years and will review options on the special dividend or share buy back at the time of the Selfridges de-merger. It is now likely that only the pounds 77m gained from the sale of the St Enoch's shopping centre in Scotland will be returned to shareholders.
Commenting on the blocking of the Freemans deal, Sir Bob Reid, Sears chairman, said he regretted the decision and would seek a judicial review. However, analysts said the chances of success via this route were "virtually nil".
Sir Bob said Sears would not seek to sell Freemans to any other bidders but concentrate on improving its performance. Yesterday it reported a better than expected trading performance with second half sales up by 8 per cent to date.
The blow knocked 3.5p off Sears share price which fell to a 15-year low of 54.5p. Analysts said that even though the market had been anticipating the Government's decision "the news was still depressing when confirmed".
Nick Bubb at Societe Generale Strauss Turnbull said that when Selfridges was demerged next June it could be worth 30p per share valuing it at around pounds 460m. This leaves other parts of the business such as British Shoe Corporation valued at almost nothing in the current share price.
Sears says plans to sell the footwear businesses are progressing well and that interest has been expressed in all of the brands. Potential buyers are now undertaking their due diligence procedures. There have been fears that the company may be forced to close larger numbers of stores if buyers cannot be find. David James, the company doctor, has been working on finding buyers since the spring together with JP Morgan, the investment bank.
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