Investors pick finance role for Pacific Retail

By Nicholas Bryant

Friday 26th May 2000

MAURICE KIDD: Investors say his appointment should mean change is swift and significant

There is a growing expectation among investors that the increasingly profitable listed appliance chain Pacific Retail Group could soon be used to accommodate majority shareholder Eric Watson's various finance company interests.

Mr Watson holds a 63.4% stakeholding in Pacific Retail, a company he admits to buying because of its then $130 million retail finance book.

That book is now worth $150 million and last year Mr Watson turned down a $1.60-a-share offer for his shareholding from Foodland Associated - a deal which could have netted him a quick $10 million.

Pacific Retail, made up of Noel Leeming, Bond & Bond and Computer City, is the country's largest appliance retailer with sales of nearly $400 million a year.

Before Mr Watson bought into Pacific Retail it had performed poorly and been the target of criticism for the seven figure salary of former managing director Nick Lowe. It has since been turned around.

The company is expected to announce a pre-tax profit of about $14.5 million in the next few weeks, a result previewed by a recently posted 163% increase in profit for the third quarter.

Since Mr Watson acquired his major shareholding early last year there has been considerable speculation about how the company will fit into his overall investment plans.

The appointments of right-hand man and former finance director of the Blue Star Group, Maurice Kidd, to chair Pacific Retail not so long ago and restructuring speciialist Greg Kay to his management team fuelled belief that change will be swift and significant.

While market analysts believe Pacific Retail will ultimately expand its commercial base through future retail acquisitions and mergers, an immediate first move could be the merging of the financial interests under the Pacific Retail umbrella.

One analyst said Mr Watson's recent acquisition of the remaining 70% of Elders Rural Finance, and acquiring total control of the company in the process, could provide the key to his future plans.

"It is logical Mr Watson should want to expand and consolidate his various financial interests through a single entity.

"To take retail away from finance and vice versa would weaken both entities but adding to both would make sense from a critical mass value perspective.

"Without doubt Pacific Retail offers the ideal NZSE listing vehicle for a formal grouping of Pacific Retail Finance, BSG Finance and Elders Finance," the analyst said.

A further reason expansion would be easy is the tightly held scrip.

With few shares in public hands Mr Watson could go to the market or raise capital by private placement of new stock without significant dilution of share value.

That tightly held scrip explains why there has been little long-term volatility in Pacific Retail's share price, though it was trading down 6c at $1.60 at the close of trade on Wednesday.

In February The National Business Review revealed Mr Watson had Dunedin-based Frontline Finance in his sights to form a $440 million finance company.

The plan was to amalgamate it with Cullen Investments-owned BSG Finance and Pacific Retail Finance, part of Pacific Retail, as well as his recent acquisition, Elders Rural Finance.

A spokesman for Frontline Finance said as yet Mr Watson had made no public offer for the company.

Mr Watson was out of the country and unavailable for comment.

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