Kingfisher's electricals demerger hit by £100m tax

Kingfisher is to be stung with a £100m French tax charge, that will take the cost of the retailer's plans to spin off its electricals business up to £226m.

The company also announced yesterday that the demerged electricals business will be chaired by David Newlands, the chairman of the engineering group Tomkins, as it gave more details of the plan to split its core DIY business from electricals. The demerged company, called Kingfisher Electricals SA, or Kesa, will have debt of £400m.

Kingfisher hit out at the tax demand yesterday. "We feel the French tax authorities are in effect taxing the same profits twice," Jonathan Miller, a Kingfisher spokesman, said. The company believes it will be able to recoup much of the charge, but said it would pay the amount now to avoid a penalty.

"In the past Kingfisher has benefited from tax relief for keeping the home improvement and electricals businesses together. The French tax authorities want us in essence to pay back that tax relief now," Mr Miller said.

"We have a very strong case for clawing back the whole of the £100m charge, but the issue could take up to four years to resolve," he added.

Kingfisher will also pay £60m in fees to advisers working on the transaction, including £12m paid last year. This will be shared out between the investment banks UBS Warburg, Goldman Sachs, Lazards and BNP Paribas, the law firm Freshfields and accountants PricewaterhouseCoopers.

The company will also have to take further charges of £11m for restructuring debt and £55m, after tax, for closing the currency hedging contract it took out to protect the value, in sterling, of its previous plans to float the business in France. There will be no initial public offering, the electricals business will simply be demerged, with a primary listing for the shares in London.

David Stoddart, an analyst at Teather & Greenwood, said: "Some of the costs are quite chunky and they will have come as a surprise. In particular the French tax charge is very unexpected and seems high."

Kingfisher is spinning off its electricals business ­ Comet in the UK and Darty in France ­ to focus on home improvement, where it owns the B&Q chain, a faster growing and more profitable area. About half of group profits come from France.

Kingfisher will complete the demerger by the end of July. Kesa operates 650 stores in seven countries and is Europe's third-largest electrical retailer. Sales for the year were £3.9bn with retail profit of £160m.

The new chairman, Mr Newlands, will work alongside Kesa's chief executive, Jean-Noel Labroue, and finance director Martin Reavley.