Terms of shop leases hold up sale of Signet chains

The sale of Signet's UK jewellery chains H Samuel and Ernest Jones has been held up by negotiations over the 600 shop leases. There are 430 branches of H Samuel and almost 170 Ernest Jones shops with the leases controlled by 162 different landlords.

Protracted negotiations over the lease terms have delayed the sale of the two groups, which are expected to be acquired by Apax Partners, the UK venture capital company, in a pounds 280m deal. The sale is still expected to go through and could be completed this week.

"It's a nightmare. It's a wall of complicated property issues," one source close to the negotiations said.

Though Signet has never revealed details regarding the sale of its two UK businesses, it is understood that Apax has been the only potential buyer for several months.

Signet put the UK jewellery businesses up for sale in January in an attempt to reduce its hefty debts of around pounds 350m, as well as to appease rebel shareholders. At the time, several groups expressed an interest in the shops, including the former chairman Gerald Ratner.

Apax is unlikely to retain ownership of both chains. One possibility is that it would also buy Goldsmiths, the rival jewellery group run by Jurek Piasecki, and take the company private.

Mr Piasecki has long been interested in running the more upmarket Ernest Jones chain. It is possible that he would be made chief executive of the enlarged group with the H Samuel business sold off. Argos, the catalogue retailer is a possible buyer.

The sale of the two UK chains would considerably ease Signet's financial position and enable a capital reconstruction. The former Ratners business had net debt of pounds 308m at its year-end in February. It also owes pounds 135m to preference shareholders in unpaid dividends.

The sale would leave Signet with only Sterling, its US jewellery chain, but with a London head office and stock market quote. Signet would become the second-largest jewellery retailer in the US, with profits of pounds 46m on sales of almost pounds 560m from its Sterling chain last year.

Signet's position has been helped by strong recent trading by its core chains. In April, chairman James McAdam said like-for-like sales in the first 10 weeks of the current financial year were 6 per cent ahead of the same period in 1995. Ernest Jones was the best performer with a sales increase of 24 per cent. H Samuel was up 1 per cent. Sales at the American business were 5 per cent higher.