Lease snag delays Signet jewellery sale

The long-awaited sale of Signet's two UK jewellery businesses, H Samuel and Ernest Jones, to the venture capital group Apax Partners has been delayed because of complex negotiations over property leases on the chains' more than 600 shops. Details of a sale had been expected about now but completion has been put on hold until a formula can be agreed to safeguard Signet from any future liability regarding the leases.

The issue was given added urgency recently when Sears closed 200 shoe shops returned to it after the collapse of Facia, the company to which it had previously sold them. Under British property law, responsibility for the leases on buildings reverts to the original lessee in the event of a default by a party to which they have subsequently been assigned.

Signet is determined not to face any similar liability when it finally pulls out of UK retailing as it announced it planned to do last January. The proposed pounds 280m sale of H Samuel and Ernest Jones, forced on the company by crippling debts, will reduce Signet to its American chain Sterling and a move of headquarters to the US is expected to follow the deal.

The rules on lease assignments have come in for heavy criticism in recent years. Thanks to the unusually long leases on British commercial properties of up to 25 years, compared to under ten in many continental markets, businesses can find themselves responsible for leases on properties they vacated years previously.

James McAdam, chairman of Signet, remained tight-lipped on the sale yesterday, saying only that "discussions have taken place with a number of interested parties and are still continuing with one potential purchaser".

He was speaking as the group, formerly known as Ratners, announced a two-thirds reduction in its first half loss after a 7 per cent increase in like for like sales. Ernest Jones gave the strongest showing, with an 18 per cent improvement in comparable turnover.

At the operating level Signet reported its first interim profit since 1990, reversing a pounds 2.9m loss into a pounds 10m profit. After interest payments on the group's pounds 306m debt mountain, the pre-tax loss emerged at pounds 6m compared with a pounds 21.3m deficit a year ago. There was no dividend on either Signet's preference or ordinary shares.

Mr McAdam said: "The group has been trading well and the much improved results for the half year are encouraging. We now need to maintain the good progress and prepare for the all important Thanksgiving and Christmas trading periods."

Still unclear is the possible involvement after an Apax acquisition of rival jeweller Goldsmiths, which has made no secret of merging its operations with Ernest Jones believing it could squeeze sizeable rationalisation benefits out of a deal.

In recent weeks attention has shifted to a possible management buyout of Ernest Jones and H Samuel, backed by Apax. A plan for Apax to buy a large stake in Goldsmiths and then merge its business with Ernest Jones appears to have been abandoned.

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