Kesa rejects bid as too low after pick-up in trading

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The Independent Online

The chairman of Kesa Electricals, which last week rejected a £1.72bn bid approach from a private equity consortium, yesterday signalled that any fresh offer would have to be substantially higher for the board to consider opening its books.

David Newlands reiterated that the 325p-per-share approach, believed to be from KKR, Blackstone and Permira, "was too low". He said that the pre-conditions attached to a private equity bid "add a layer of complexity and risk" compared with a straight cash bid from a rival public company.

He believes shareholders will see better value from Kesa's push into new markets - yesterday it announced plans to take its Darty chain into Turkey - and its strong cash generation. Stressing the group's strong defensive merits, Mr Newlands pointed out it had paid down £200m of debt since it was demerged from Kingfisher three years ago, leaving it with net debt of £166m. Yesterday Kesa raised its dividend by 10 per cent for the second year.

Analysts believe the bid consortium could raise its offer given the potential for breaking up Kesa, which has recently expanded into Switzerland and Italy. Christian Koefoed-Nielsen, at Panmure Gordon, said it could also make an attractive target for an overseas bidder looking to enter European markets, such as Best Buy of the US.

But he added: "Interestingly, Kesa was 'shopped around' intensively by its previous owner before it was ultimately demerged - yet no one stepped up to buy it then. Given the profitability of the business was some 30 per cent higher in 2001 than in our 2006 estimate, it seems bizarre that a buyer would emerge now to pay more for less." Shares in Kesa are 319.25p down 5.75p.

After a year that ended with two profit warnings and saw pre-tax profits fall 19.4 per cent to £143.3m, the company said trading had started to pick up. Jean-Noel Labroue, the chief executive, said: "We are seeing an improvement everywhere but it is far too early for us to extrapolate."

A weak white goods market, where products are higher margin than the new technologies, was to blame for a 21.4 per cent fall in profits at Comet, its UK chain, to £38.3m. Underlying sales fell 3.6 per cent as the chain lost share at the budget end of the market to the likes of Tesco.

In France, its Darty chain saw retail profits drop 7.3 per cent to £109.9m.