ARGOS, the catalogue retailer, unveiled the final part of its defence against Great Universal Stores' pounds 1.6bn bid yesterday with plans to return pounds 431m to shareholders if they turn down the GUS offer.
The cash return of 150p per share came as Argos unveiled an upbeat profit and dividend forecast for the first six months of this year. It also claimed the implied value of an ongoing share in Argos was 700p including the cash return, far higher than GUS' 570p offer.
As Argos shares dipped 2p to 646p, most analysts said they expected GUS to increase its bid next week with some saying the home shopping group may have to add up to pounds 1 per share to its current offer.
An upbeat Stuart Rose, Argos' new chief executive, said: "I think our chances [of fighting off the bid] are extremely good. I feel bullish." Urging shareholders to reject the offer he added: "GUS has misjudged it. The offer woefully under-values the business."
Argos's institutional shareholders appeared supportive yesterday and most said the new management team had raised the stakes significantly since the bid battle started. "They are making a reasonable show of their defence and I think GUS might have to pay up quite a bit more to get it," said one senior fund manager.
Lord Wolfson, GUS chairman, maintained the pressure with another attack: "It is extraordinary that, after a series of profits warnings, Argos believes it deserves a blue chip price earnings multiple similar to M&S, Kingfisher and Boots."
He said the profits forecast was "imaginary" and the calculation of an implied Argos share price "totally unrealistic".
Analysts at stockbroker NatWest Securities criticised Argos, saying it was returning too much cash to shareholders and that GUS might not need to raise its offer at all to win. "They have overdone the cash distribution placing the company in a perilous financial position. They have shot themselves in the foot. GUS may even say its 570p or that's it."
Argos admitted that returning pounds 431m to shareholders would give the company debts of more than pounds 300m and negative net assets. However, it said cash generation was strong and interest cover would stand at 5.5 times.
Under takeover rules, GUS has until next Thursday to make its final offer.
One analyst said: "If they walk away having bid 570p they really do look rather opportunistic. There is now a case for saying that GUS needs Argos more than Argos needs GUS, given the competitive threat which Argos poses through the extension of home delivery and through its joint venture with Littlewoods."
Separately, Argos announced that it will close its two First Stop stores at a cost of pounds 2m. These were a test of a lower priced warehouse style operation. The company also said that Peter Birch, the former Abbey National chief executive, would succeed Sir Richard Lloyd as chairman in May, if the GUS bid were defeated.
Argos is forecasting first half profits of pounds 35.9m, an increase of 27 per cent. The dividend will see a 15 per cent increase to 21.2p, it said.
GUS shares closed 6p higher at 760p.
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