Postie Plus Group, the clothing retailer, expects to reap $4.1 million from the sale of its Babycity chain of stores.
The Christchurch-based company will ask shareholders on May 9 to sign off on a deal to sell 10 of the 17 Babycity stores, stock and forward orders worth some $5.6 million to Baby City Retail Investments, a company operated by former LV Martin manager Trevor Douthett.
Baby City Retail will also take on specific liabilities, resulting in a net amount payable estimated at $4.1 million, according to the Postie Plus notice of meeting.
The deal needs shareholder approval because the total transaction value exceeds more than half the company's 20-day average market capitalisation of $9 million. At today's share price of 28 cents, Postie Plus is worth $11.2 million.
"Babycity has generated only marginal earnings before interest, tax and depreciation for the previous two years" and the sale is expected to add to Postie Plus' group earnings, the company said.
Postie Plus "is seeking to acquire complementary retail brands to further development its national footprint," it said. "The sale of Babycity both focuses PPGL's business and provides funds for further acquisitions."
If the company can't get shareholder approval, it has "commenced a store rationalisation programme to improve profitability" but the "board believes that the value to shareholders achieved through the proposed transaction is significantly greater than the value of forecast profits that may or may not be achieved," it said.
Baby City Retail Investments will have an option to take over an extra five stores, but will not take the last two stores, and Postie Plus will give a full update at the meeting.
"For two stores which are not being taken over, PPGL intends to sub-lease the cluster store and reduce the footprint of the Post Plus stand-alone store at the other site," it said.
Postie Plus will continue to supply apparel to the Babycity chain under a wholesale agreement, and has signed up to a five-year restraint of trade in infant hardware retailing.