Kesa Electricals became the second major retailer to withdraw from a cut-throat UK market this week, paying a 50 million pounds dowry to a private equity firm to take the loss-making business Comet off its hands.
Shares in Kesa lost early gains to trade 2 percent lower on Wednesday after it said it had agreed to sell Comet, which has 248 stores and employs 10,000 staff, to OpCapita for a nominal 2 pounds.
Kesa said it would invest 50 million pounds in the purchaser and would also retain the liability for the Comet Defined Benefit Pension Scheme, which has a net deficit of 45 million euros.
The 50 million pounds is categorized as an investment but the truth of the matter is we had to pay 50 million pounds to get the business away. We will be writing it off as having no value, Kesa Chairman David Newlands told reporters.
Comet made a loss of 8.9 million euros in the year to April and sales at stores open over a year slumped 18.6 percent in the first half to October 31. It was put up for sale by Kesa in June.
The deal provides a clean break for Kesa from the tough UK electricals retail market and strengthens its balance sheet with the removal of UK lease liabilities of about 90 million euros a year.
Specialists such as Comet and Currys owner Dixons Retail face cut-price competition from supermarket chains and the internet, at a time when consumers are cutting back on discretionary purchases due to a squeeze on household budgets.
On Monday top U.S. electronics retailer Best Buy Co scrapped plans for a chain of European megastores and said it would close the 11 stores already opened in the UK.
KNIGHT VINKE PLEASED
Kesa will now focus on driving its Darty business across Europe.
The firm's largest investor Knight Vinke, which owns about 18 percent, said it would vote in favour of the Comet sale when it is put to shareholders in December.
This transaction substantially de-risks Kesa and opens the way for Darty, Kesa's remaining business, to return to the French stock market, it said.
However, Newlands said there were no current plans to de-list Kesa from London and switch from a secondary to a primary listing in Paris.
Kesa also cautioned that unless current market conditions significantly improved, Darty France's retail profit for the 2011-12 year would be below the prior year.
It said the French electricals market had weakened further since the end of the back to school period.
Sales at Darty France stores open over a year fell 3.7 percent in the first-half, while gross margins declined slightly.
Total group revenue fell 7.6 percent in euros, though gross margin improved by around 10 basis points.
The disposal of Comet is welcome, but the effect of deteriorating conditions in France and uncertain markets elsewhere leave the shares over-valued, said Panmure Gordon analyst Philip Dorgan, who cut his 2011-12 pretax profit forecast from 68 million euros to 52 million euros.
Shares in Kesa were down 1.7 pence at 100.2 pence at 1108 GMT, valuing the business at about 528 million pounds.
OpCapita was advised by Lazard on the purchase of Comet. Kesa was advised by Bank of America Merrill Lynch.
(Editing by Mark Potter; Editing by Elaine Hardcastle)