Burberry sale starts GUS break-up with Argos to follow

Click to follow

The fate of GUS was sealed yesterday after the conglomerate unveiled plans to demerge its remaining majority stake in Burberry and sever Argos Retail Group from Experian, its financial services business.

The fate of GUS was sealed yesterday after the conglomerate unveiled plans to demerge its remaining majority stake in Burberry and sever Argos Retail Group from Experian, its financial services business.

Although the former Great Universal Stores group promised to hand its 66 per cent stake in Burberry - worth about £1.3bn - to shareholders by the end of the year it disappointed the City by failing to outline a timetable for the separation of Argos and Experian.

Shares in GUS fell 3 per cent to 859p, a long way off the £10-plus "sum-of-the-parts" valuation most analysts believe the group merits. Its decision to cut its remaining ties with Burberry, which it partially floated nearly three years ago, via a special dividend buoyed shares in the luxury goods group by removing the threat of GUS offloading its shares in the market. Burberry's shares closed up 5 per cent at 400p.

John Peace, the chief executive, defended accusations that the group, which launched a two-year strategic review 12 months ago, was dragging its heels. "Anyone who tells you that corporate restructuring is easy peasy has never run a business. At the right time we will seek a separation... [but] it will not be in 2005," he said. "All options" for the two businesses, ranging from a trade sale to listing Experian in the US, remain open, he added.

Shareholders welcomed the step forward but some berated the lack of urgency. "We are disappointed there is nothing more concrete," one fund manager said.

Sir Victor Blank, the chairman, said: "This is not just about unlocking a bit of value now but maximising value for shareholders in the medium term. The right time is not now."

Some analysts believe the group was forced to delay its plans by the severity of the downturn on the high street. Underlying sales at Argos, which is widely regarded as one of the retail sector's strongest performers, fell for the first time in six years during the group's fourth quarter.

Terry Duddy, the chief executive of Argos Retail Group, which also owns Homebase, said there was "no guarantee of any kind of bounceback. It's a cautious but pragmatic view." He is budgeting for underlying sales at the two chains to be flat at best and down about 1 per cent at worst.

The imminent break-up of GUS looks set to leave Mr Peace, who joined the group in 1970, out of a job. But Mr Peace, who also chairs Burberry, claimed it did not necessarily spell the end of GUS. "GUS has been a vehicle for developing and growing a good business. If at some stage we demerge ARG or Experian the name of the business may be GUS," he said.

GUS was founded by Abraham and George Rose in Manchester as a mail order house. It was christened Great Universal Stores in 1930, the year before it listed on the stock market. But it was under the aegis of the Wolfson family that the group really flourished. Under Isaac Wolfson, the company spanned more than 80 businesses by the Fifties, ranging from clothing and furniture manufacturers to UK retail chains and international mail order.

At some point this year, shareholders in GUS will receive a dividend in specie, which will leave them holding shares in Burberry and slightly less valuable shares in GUS. Shares in GUS will then be consolidated so its save as you earn schemes - and the company's directors - do not lose out when cashing in their options.

The news of the impending separation came as GUS reported flat pre-tax profits of £693m. Excluding a charge to cover a £16.2m fine for Argos from the Office of Fair Trading for fixing the price of toys and a £18.3m restructuring charge at Homebase, underlying pre-tax profits rose 10 per cent to £910m.

Growing information arm shows the value of Experian

In many ways, Experian is the true heir of the old Great Universal Stores group. The roots of the financial information business lie in the old mail order group's credit scoring operations. In the Fifties, GUS started offering to check customers' credit histories for other people.

The business ballooned and in 1980, John Peace founded the group's global information services arm - CCN. Some 16 years later, CCN became Experian - so called to conjure up the comforting notion of experience.

Experian has more than pulled its weight within GUS. Last year its profits grew 16 per cent to £318.3m on sales up 18 per cent to £1.4bn. It has more than 50,000 clients in 60 countries although its main market is the US, prompting speculation that GUS will seek a New York listing. It added 16 bolt-on businesses to Experian last year although these were dwarfed by last month's $330m purchase of LowerMyBills.com, aimed at bolstering its share of the consumer market. Analysts reckon Experian is worth £3.9bn to £5.3bn.