Kingfisher dives into Europe with French buy

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The Independent Online
KINGFISHER, the Woolworth, Comet, B&Q and Superdrug stores group, confirmed yesterday that it was close to making its first move on to the Continent by buying France's top electricals retailer, Financiere Darty. Its shares dropped 20p to 538p as the market braced itself for a rights issue to fund the possible pounds 1bn-plus acquisition.

Nigel Whittaker, corporate affairs director, said he hoped the two sides were not far away from agreeing a deal. News of the takeover talks leaked out in the French press.

Darty is the leading electrical retailer in France, with a 12 per cent market share. On a turnover last year of more than pounds 1bn it made net profits of pounds 70m. It sells white and brown goods through 130 stores with an average size of 12,000 sq ft. Comet has 230 stores in the UK with an average size of 6,000 sq ft.

Darty was formed in 1988 after a management buyout that left it with debt of pounds 500m. Some 4.7 per cent of the former company, Etablissements Darty, was not bought out and is still quoted on the French stock market. Its shares were suspended yesterday. Kingfisher will have to buy in the rump for the deal to go ahead.

Described by Mr Whittaker as the jewel in the crown of French retailing, Darty has a high level of customer service. French stores have a legal responsibility for the electrical goods they sell. Mr Whittaker said Darty had good prices, good locations and was expanding from its heartland in the Paris region.

Kingfisher has been looking for an acquisition on the Continent for some time, as its prospects for expansion by acquisition in the UK are hampered by its wide spread of activities. It has been looking particularly in France, Germany and Spain for businesses where it understands the product, where there are growth opportunities, where the management is first class and wants to stay, and where the price is right.

Kingfisher believes it has found the right company in Darty, but just has to settle details on the price. It has a reputation for not overpaying for acquisitions.

Some 56 per cent of Darty is owned by its management and staff, 25 per cent by the Darty family, and 19 per cent by institutions including Credit Lyonnais and Banque Nationale de Paris.

If the deal goes ahead, Kingfisher hopes it will be the start of a combined expansion on the Continent, possibly into Germany and Spain next. Kingfisher has been rumoured to be close to an acquisition on the Continent before. It was reported to be interested in buying Carrefour's 29 per cent stake in France's leading DIY operation, Castorama.

Its last expansion move was in the UK into the office stationery and equipment market through a joint venture with Staples, the fast-growing US chain. The partnership plans four store openings in the UK this year with each partner investing up to pounds 4m initially.

In its latest interim results to 1 August, Kingfisher made pre-tax profits of pounds 67.8m compared with pounds 70.6m in the previous first half. In the full year just ended pre-tax profits are expected to be between pounds 230m and pounds 240m compared with pounds 227.7m in 1992.

Gearing levels were 12 per cent in August, but are expected to fall further by the year-end. This year Kingfisher is expected to move into a net cash position.

Despite the strong balance sheet, the market expects a rights issue will be needed. A convertible Eurodebt issue, or some other form of debt funding, is expected to overstretch the balance sheet.

A run of retail rights in the past two weeks, including a pounds 347m issue from Asda and a pounds 163m issue from Burton, has already taken its toll on the retail sector.

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