Minority investors threaten Richemont revamp

THE pounds 5bn restructuring of the Richemont tobacco and luxury goods empire is being threatened by a revolt of the minority shareholders in Dunhill Holdings.

The shareholders, led by one of the City's leading institutions, are planning to vote against the proposals to split the empire into two FT-SE 100 companies - Rothmans, which would hold the tobacco interests, and Vendome, which would own the empire's luxury goods brands, including Dunhill, Cartier, Montblanc and Hackett.

Richemont, the holding company for the interests of the South African Rupert family, will have a 60 per cent stake in Rothmans and 70 per cent of Vendome after the restructuring. The rebel institutions claim that the deal substantially undervalues Dunhill's assets, and believe they can muster enough support to block the restructuring.

To go through, the deal needs the backing of 75 per cent of the Dunhill shares not controlled by Richemont. This means that shareholders controlling just 10 per cent of the capital can block the deal.

Institutions controlling over 5 per cent have already told the Independent on Sunday that they are likely to vote against the proposals at the extraordinary meeting on 7 September.

The shareholders believe that Dunhill's presentation of its figures, three profit warnings and rumours of management dissent have been intended to suggest that the company would suffer if the restructuring did not go ahead.

One leading investor said: 'I think Dunhill has been rather more frank than it would normally be, and we are being bludgeoned into accepting this deal.' He argued that it might be better for shareholders if a new management team was brought in.

Rebel institutions are angry because the Dunhill interests are being bought out at an apparently much lower price than Cartier. The deal values Dunhill at 14.7 times earnings in the year to March, while the Cartier business is valued at nearly 19 times earnings for the same period.

Supporters of the deal claim that the disparity is justified because Dunhill's profits are under pressure. The company gave a profits warning in June after internal accounts revealed it had made just pounds 2m during the month against a budgeted figure of pounds 9m.

Lord Douro, the chairman, gave a second warning a few weeks later, and this week it emerged that foreign exchange agreements will depress profits by pounds 19m this year and pounds 13m next.

Taking those factors into account, some City analysts have calculated Dunhill will make pounds 60m this year, compared with pounds 71m in 1992/3. After stripping out the pounds 10m of annual tobacco royalties the group receives from Rothmans, Dunhill's luxury goods interests appear to be valued at over 20 times prospective earnings.

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