Co-op pledges to fight off pounds 2bn `asset-stripping' bid

THE CO-OPERATIVE movement was up in arms yesterday after reports that a US finance house backed by a South African retail group is set to launch a pounds 2bn hostile bid for the Co-operative Wholesale Society (CWS).

Members of the movement stand to pocket windfall payments of up to pounds 2,000 if the bid comes off. Babcock & Brown, a private asset finance company based in San Francisco, is proposing to dismantle the CWS and sell its retail arm to Pepkor, the South African retailer that owns Poundstretcher.

Babcock & Brown and Pepkor were unavailable for comment. However, City sources indicate that the CWS's other operations, including banking, funeral parlours and travel agencies, could also be sold on.

The move echoes that of Andrew Regan two years ago, when the 31-year- old entrepreneur tried to bid for the CWS but failed, damaging his reputation and that of his City advisers, Hambros Bank, in the process.

A spokesman for the CWS said last night: "Let me make it very clear - CWS is not for sale. The board has a veto over the way the business is run, and it is rock solid behind the CWS management and chief executive Graham Melmoth, so we're not looking at a building society situation."

The spokesman was adamant that offering pounds 2,000 inducements to members would not work. He said: "We have had no contact with them [Babcock & Brown]. If any attempt were made to buy us, we would resist the attempt just as we did two years ago [with Mr Regan]."

The spokesman added: "We haven't received any approach at all, so as far as we're concerned there is no bid."

Brian Keelan, a corporate financier with SBC Warburg (now part of UBS) led the successful counterattack on behalf of the Co-op against Mr Regan. Mr Keelan is now running UBS's global leveraged finance business in New York, but is keeping a quiet eye on developments in the UK.

The CWS spokesman said they were not retaining any City advisers at the moment, although it was "too early to say" whether they would end up doing so.

Even with inducements of pounds 2,000 per member being offered, Co-op sources reckon the South Africans have "failed to do their homework". The Co-op is structured differently from a mutual building society, the spokesman pointed out.

Unlike a building society, any ownership decision does not rest with members but with the CWS's elected board. This has 28 members, drawn from 50 independent co-operative societies across the UK. That, together with a labyrinthine constitution and steadfast leadership from Mr Melmoth, should see off any predator, a spokesman said.

Another source in the Co-operative movement said: "The South African asset strippers are in for a hell of a fight."