Boots returns to its roots with Halfords demerger

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The Independent Online

Boots unveiled plans yesterday to demerge Halfords, its car accessories chain, in a move that is likely to lead to a flotation in the autumn.

The health and beauty retailer, which has come under pressure from cut-price pharmaceutical sales at supermarkets, said it would also consider selling the business. A demerger, which draws a line under the company's ill-fated acquisition of Ward White in the late Eighties, will leave Boots free to focus on its core health and beauty business. Its shares fell 0.5p to 694p.

Steve Russell, Boots' chief executive, said: "Halfords is an excellent company with a strong management team and a good record of profit growth. I am confident it will thrive as an independent company."

Analysts welcomed the move, which ends months of speculation that Boots would put the business up for sale after the disposal last August of its Halfords garages to Centrica. It is thought that a stock market listing would value Halfords at up to £500m.

Nick Bubb, at SG Securities, said: "It's long overdue and a good time to exploit the recent strength of the retail sector. It is a welcome bit of news but rather peripheral to the core issues and debates."

The group that own Britain's biggest chain of chemists is seeking ways to boost top-line growth in the face of increased competition on the high street. A number of forays overseas have also proved unsuccessful. It is mid-way through a number of retail trials in the UK including operating mini-stores inside J Sainsbury, the supermarket group, and Pure Beauty, a retail concept aimed at the premium end of the health and beauty market.

Analysts will be looking for updates on how these are performing as well as clarification on future investment in new stores and the company's range of Well Being services, such as eye testing and chiropody, when Boots reports its full-year results next month.

While the company refused to confirm if it had received any approaches for Halfords, it said that the separation was expected to be complete by the autumn. It added that it felt a demerger was "the most appropriate method of separation" and that Deutsche Bank had already got this process underway. Rod Scribbins, Halfords' managing director, will take over as chief executive. Boots said it had not yet begun the search for a chairman or other non-executive directors.

Boots has been investing heavily in the 400-strong Halfords chain, which sells car and cycle parts, to prepare it for independence. It has refurbished old stores under the new Arcade format and opened larger, out-of-town superstores. The business had restated profits of £42m on turnover of £509m last year. Boots expects profits to increase to £50m at the end of the financial year in March.

Richard Ratner, an analyst at Seymour Pierce, said: "It's a nice business but has nothing to do with the rest of Boots." He added that a flotation was more likely than a trade sale because previous approaches that valued Halfords at about £400m had been rebuffed. "I don't think Boots can afford to sell this business, they would be giving it away for anything under £600m," Mr Ratner said.

The Halfords demerger marks the final piece in the unravelling of the 1989 Ward White deal, which saw Boots diversify into fields as diverse as do-it-yourself and garage servicing. One analyst remarked yesterday that the disastrous move by Boots' then chairman, Lord Blyth, had cost the company well over £1bn when all the losses on disposals were added back.

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