N Brown in talks for Freemans

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The Independent Online
Shares in N Brown, the mail order group, were suspended yesterday after the company confirmed it was in discussions to buy the Freemans home shopping business from Sears.

The announcement follows last week's decision by Littlewoods to pull out of the Freemans deal when it was told Sears was in discussions with other parties. N Brown is in exclusive talks with Sears and the price is expected to be similar to Littlewoods' pounds 395m offer. Littlewoods said it would still be interested in Freemans if the N Brown deal collapses.

N Brown would need a sizeable rights issue to fund the deal as it already has gearing of 23 per cent. The company is likely to fund it with a mixture of debt and equity. A rights issue would involve the dilution of the 58 per cent stake in N Brown controlled by the chairman, Sir David Alliance, and his family. The shares were suspended at 377.5p, down 4p.

City analysts said that though the Freemans deal may be dilutive, N Brown's good track record should ensure shareholder support. "It is a highly rated stock and the market is likely to be sanguine. Both sets of shareholders would probably be supportive," said Sean Eddie of NatWest Securities.

N Brown said the acquisitions of Freemans would provide it with the opportunity to use its direct marketing skills to increase the combined group's sales. Some job cuts are likely.

N Brown's customers are largely over 50 while those of Freemans are typically in their mid-30s. N Brown's direct-selling approach to mail order could also be applied to theagency business of Freemans.

N Brown controls 4 per cent of the UK mail order market compared to Freemans' 9 per cent. The deal would catapult N Brown to third place in the mail order market behind Great Universal Stores and Littlewoods.

Sears is under pressure to secure a quick sale as the chief executive, Liam Strong, has promised to return pounds 410m to shareholders. With profits at Freemans falling and morale low, Mr Strong would like to close the deal before Sears' annual results on 24 April.

N Brown made profits of pounds 31m last year on sales of pounds 230m. Freemans made pounds 38m on sales of pounds 531m.