Thorn leaps on bid
Wednesday 08 April 1998
Thorn was forced to issue a statement by the Stock Exchange to explain a sharp rise in its share price. It is understood that the Exchange has now launched an investigation into recent share dealings in the company.
Thorn refused to identify the potential bidder, although the City speculated that a financial buyer might be tempted to mount a bid for the cash-generative business and then sell off the unwanted parts. American buyers may also see Thorn as an under-valued asset.
At yesterday's closing price, up 60.5p to 221p, Thorn is valued at pounds 824m. This is almost half its value when it was de-merged from EMI, the music group, in August 1996. Thorn's share price has been devastated by poor UK trading as well as US litigation over credit terms on rent-to-own deals.
Analysts said a bid would be a surprise given Thorn's problems. "It's nearly impossible to value the business because of falling profit expectations," one analyst said.
Thorn confirmed yesterday that it was already planning to break itself into two by selling its US business as part of a fundamental strategic review of the business designed to help restore profits. It has received indicative offers from American rivals for its US operations. Analysts believe competitors such as Renters Choice, RTO and Aarons are likely to have expressed an interest in buying the business and could also consider mounting a takeover for the whole group.
Granada, Radio Rental's main competitor on the UK high street, said yesterday that it was not behind the bid approach. Analysts said Granada was unlikely to launch a takeover as it would raise severe competition concerns in the UK.
Thorn's profits have been hit by a decline in its core Radio Rentals business, due to a rise in insurance premium tax and a trend for consumers to buy TVs and videos instead of renting them. Growing litigation fears in the US over rental agreements entered into by its 1,400 strong Rent- A-Center chain have also hit the group's share price.
This poor performance culminated in Mike Metcalf, the group's chief executive, leaving the group last February, halfway through a strategic review. He was replaced in February by Steven Marshall, previously Thorn's finance director.
Mr Marshall has set about cutting costs and running the business for cash. Around 90 stores have been closed.
Thorn made pre-tax profits of pounds 171m on turnover of pounds 1.6bn last year. Retail analysts expect profits to fall in the year to March 1998 to around pounds 120m and to pounds 105m the year after.
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