Kingfisher's plan for a £3.2bn buyout of the remaining stake in the Castorama French DIY business ran into immediate trouble yesterday when it was rejected by Castorama's minority shareholders.
The shareholders, who account for 45 per cent of the equity, said they were going to the courts to protect themselves against the planned buyout, saying it violated statutes.
Castorama said it "doesn't consider the Kingfisher offer satisfactory". The company said it had an alternative plan "which we have proposed for months and would better optimise shareholder value."
Under the terms of the original deal between the two companies in 1998 Kingfisher has a right to buy out the remaining shares at a price determined by an independent bank. If the price is deemed fair, Kingfisher can secure control of the business despite the objections of shareholders.
The French reaction confirms fears that Kingfisher could get bogged down in a costly and time-consuming legal wrangle to get control of the business it merged with its B&Q operation four years ago. The central problem is that though Kingfisher owns the majority of the shares, control currently lies with the French.
The setback came as Kingfisher unveiled a wholesale shake-up, including the Castorama buyout plan, the separation of its electricals business and the impending departure of the long-term chief executive, Sir Geoff Mulcahy. The Castorama deal will be funded by a £2bn rights issue and new debt facilities.
An additional surprise was the plan to seek an initial public offering for its electrical retailing business on the Paris stock exchange.
The float, which Kingfisher prefers to a straight demerger, will see the group retain a stake in the business for a certain period before the whole of the equity can be sold.
As well as the separation of the electricals business, which includes Comet in the UK and Darty in France, the shake-up will see the departure of Sir Geoff as chief executive after 20 years at the helm.
Francis Mackay, the new chairman, said: "This represents the transformation of Kingfisher. It is about clear structures and clear management objectives to drive growth." The announcement follows Kingfisher's sale of its Superdrug business last year and the demerger of Woolworths.
Kingfisher hopes to announce a new chief executive within six months with Sir Geoff expected to leave at the end of the year. Asked how he felt to be going, the retail veteran said: "Who could have thought that we would have ended up where we are today when we started out in 1982 with the £310m buyout of Woolworths. People said it was mission impossible. I feel a tremendous amount of satisfaction."
Kingfisher is offering €67 per share for the 45 per cent of Castorama the group does not already own. The price is a 20 per cent premium to the Castorama share price before recent speculation regarding a deal.
Kingfisher is expected to remain the name of the combined company, which will be the third-largest DIY retailer in the world. As well as Castorama and B&Q it will include a stake in the Hornbach operation in Germany. Kingfisher's simplified structure would make it a target for US DIY groups such as Home Depot and Lowes.
No name for the electricals business has been chosen though it will continue to be headed by Jean-Noel Labroe. It is expected to be valued at about £2.5bn to £3bn.
Analysts supported the shake-up. Rod Whitehead, retail analyst at Deutsche Bank said: "I think they're doing the right things though, to some extent, they are making up for the mistakes of the last two years."
The shares fell 2.5p to 383p.
NO COMMENT - SIR GEOFF CALLS IT A DAY
"I'll do a bit of sailing, play a bit of squash. There's lots of opportunities out there." So said Sir Geoff Mulcahy yesterday about his plans for life after Kingfisher.
In truth, his departure from the company he has devoted the past 20 years to building will leave a huge hole in the life of this 60-year-old retail veteran. He regularly gets into the office at 7am and works until late. Weekends are spent visiting branches of B&Q and Comet.
All this has helped fuel the image of a one-dimensional personality. His mumbling speech and rambling answers to questions led to the unkind nickname "Mogadon Man".He is also well-known for once installing the central heating system in an early house to save money. "I thought you guys considered me a non-personality," he said yesterday after a series of questions on his future plans.
But he is more colourful than he is given credit for. He owns two 56 feet yachts called Noonmark 5 and Noonmark 6. An earlier model was called No Comment, after his favourite response to journalists questions. His private life has hit the gossip columns on occasion, most notably during a liaison with former Laura Ashley chief executive, Ann Iverson.
Born in Sunderland, Sir Geoff's career took off in 1982 when, after stints at Esso and British Sugar, he was a key player in the buyout of Woolworths. It was the start of what became the Kingfisher Group which later took in B&Q, Comet, Superdrug and Darty, the French electricals retailer. In the 1980s he fought off a hostile bid from Dixons before later turning the tables with an unsuccessful tilt at Dixons. He has spent the past two years dismantling what he built.
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