Kingfisher to spread wings after Darty deal

KINGFISHER, the Woolworths, Comet, B&Q and Superdrug conglomerate, is planning to expand into Germany, Italy and Spain after creating Europe's largest specialist electrical retailer with the pounds 1.1bn purchase of Financiere Darty, the French market leader.

News of an imminent deal leaked out a fortnight ago. The market, having braced itself for a sizeable rights issue to fund the purchase, was relieved that Kingfisher was asking its shareholders for only pounds 313m, and marked Kingfisher shares 30p higher to 557p.

Kingfisher helped sentiment with a forecast that pre-tax profits had risen by 5 per cent to pounds 233m before exceptional items in the year to 30 January, with the help of strong second-half sales growth at Woolworths and a restructured Comet. Dividends will rise by 5.4 per cent to 13.7p with an increase in the final from 9p to 9.5p.

Combining Darty's pounds 1bn sales with Comet's pounds 500m turnover would create Europe's largest electrical retailer, narrowly overtaking Dixons and its subsidiary Currys.

Nigel Whittaker, a Kingfisher director, said both companies would retain their separate brand names and corporate cultures. Philippe Frances, Darty's chief executive, will join Kingfisher's executive committee and a 'co-ordination task force' is planned.

Shareholders in Financiere Darty, which owns 95.3 per cent of Etablissements Darty, the top electrical retailer in France, are to be paid pounds 559m. This is made up of 68 million shares in Kingfisher, worth pounds 351m, and Fr1.65bn ( pounds 207m) in cash. A comparable offer will be made for the 4.7 per cent minority.

Financiere Darty was formed in 1988 to mount a leveraged buyout of Etablissements Darty. Darty shareholders, mainly management, employees and the founding Darty family, have agreed not to sell more than a third of their Kingfisher shares at the end of each of the three years following completion of the deal. The five senior Darty managers have agreed not to sell their Kingfisher shares for three years.

Kingfisher is also taking on Darty's borrowings, which were Fr3.8bn on 30 January and are expected to be Fr4.6bn by 1 March. After taking account of a pounds 900m write-off of goodwill, Kingfisher's borrowings on 30 January would have jumped from 8 per cent to 66 per cent of shareholders' funds. Gearing is expected to fall significantly and quickly thanks to strong internal cash generation.

Kingfisher said yesterday that it decided to provide pounds 26m against its portfolio of development properties. Reported pre-tax profits after exceptional items for the year to 30 January are estimated to be pounds 17.7m lower at pounds 210m.

Kingfisher said second-half sales at Woolworths were up 7.4 per cent on a store-for-store basis. Comet was up by 22.4 per cent. Overall turnover for the year is expected to have risen by 4.6 per cent to pounds 3.55bn. Retail profits rose 4 per cent to pounds 214m as improvements at Comet and Woolworths offset a static performance from Superdrug and a decline in profits at B&Q, its do-it-yourself business.

The rights issue is in two stages. The first instalment of 225p, due on 15 March, will raise pounds 155m and is payable whether the Darty deal goes ahead or not. A second payment of 225p will follow once shareholders and regulatory authorities have given their approval.

View from City Road, page 25

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