MMC referral deals blow to Sears' ambition

Sears' restructuring plans ran into fresh problems yesterday when the Government said it would be referring Littlewoods' proposed acquisition of the Freemans mail order business to the Monopolies and Mergers Commission.

The referral of the pounds 395m deal is a severe blow to Liam Strong, the beleaguered Sears chief executive, who had hoped to use the proceeds from the sale to return up to pounds 410m to shareholders. The MMC is due to report on the deal by 9 June causing a delay in Sears' plans for a special dividend.

Mr Strong had asked Sears' increasingly frustrated investors to give him until the summer to show the group was turning the corner.

Sears said it remained committed to the disposal of Freemans to Littlewoods. However, the MMC's decision means the contract for the sale signed last month will lapse.

The deal's referral surprised the City because Sears had said in January that the Office of Fair Trading had indicated that the Secretary of State did not intend to refer the acquisition.

As Sears shares fell 2p to 83.5p one analyst said: "It is further evidence of Sears' ability to attract bad luck. Sears is understood to have had legal advice which indicated that there would not be a problem."

Though analysts said they felt the MMC was unlikely to block the deal, the delayed sale could place further strains on Sears' cash flow.

If the deal is blocked it would force the company to seek an alternative buyer for Freemans, possibly at a lower price.

A combined Freemans-Littlewoods mail order business would have more than 25 per cent of the UK mail order market. However, the Government's statement refers specifically to the combined group's dominance of the agency part of the sector, where cash is collected every week by the company's army of agents.

Sears and Littlewoods are likely to argue that the mail order sector also includes direct catalogue groups such as a Next Directory, Racing Green and N Brown.

Mark Josephson of Panmure Gordon said the two companies could also argue that the mail order market transcends national boundaries and should be regarded as a pan-European industry.

Nick Bubb of Mees Pierson also expressed surprise at the decision. "It's not their [Sears'] fault but it must put a bit more pressure on the management."