Family offer lifts jeweller's shares

Emma Hill. Photo / Simon Baker

Shares in Michael Hill International edged up after the family of its founder offered a premium for control of the jewellery chain.

The $9 million bid to push Hill family interests over 50 per cent is off to a solid start with two large institutional shareholders indicating they will sell into the offer.

Durante Holdings - the vehicle for the family's interests - plans to offer 90c a share for 5 per cent of Michael Hill International.

The shares traded on Friday at 85c and yesterday closed at 87c.

If successful, the partial takeover will allow the family to increase its stake gradually without a formal takeover offer under the "creep" provision of the Takeovers Code, which allows majority shareholders to buy up to 5 per cent of a company's stock in any 12-month period.

Durante director Emma Hill, a daughter of Michael Hill, said the family's shareholding was now locked in the "no-fly zone" between 20 and 50 per cent where no further shares can be acquired without making a Takeover Code-compliant offer to all shareholders.

"The acquisition of this small percentage of shares in MHI will give the family interests flexibility to acquire additional shares in compliance with the Takeovers Code should there be attractive opportunities to do so.

"This offer signals the family's confidence in the future of MHI as well as giving existing shareholders the opportunity to sell a proportion of their shares at a premium. There is no intention at this time to make a full takeover offer or to sell our shares," she said.

All MHI shareholders other than Durante will be able to sell up to 5 per cent of their holding into the offer, plus shareholders can lodge additional acceptances for any further shares they wish to sell.

Scaling will apply to the additional shares offered above the specified 5 per cent should the total number of shares offered exceed the 10.03 million being sought.

The offer is conditional on Durante receiving applications for at least 9.2 million shares to take its holding above 50 per cent. The offer is also conditional on Overseas Investment Office approval being received.

The proposal is the second attempt in four months for the family of founder Michael Hill to lift its stake over 50 per cent. It abandoned an earlier attempt in September after the Takeovers Panel indicated it would not grant an exemption to takeover rules.

ACC had agreed to sell three million shares into the offer and the New Zealand Superannuation fund had agreed to sell one million shares, MHI said.

Macquarie analyst Warren Doak said the opportunity to use the "creep" rule was the most obvious reason for the move.

"They can continue to buy without shareholder approval and they do see it as real value as opposed to any other investment opportunity."

The company said the 90c offer price represented a 19 per cent premium to the 90-day volume-weighted average price. It also exceeds the highest price MHI shares have traded at in the past two years.

Doak said the premium appeared modest at the moment.

"It's not much of a premium. You could say that retail is incredibly tough, you're going to see downgrades across the market therefore share prices are going to come under real pressure," he said.

"By the time the offer closes you'll have an opportunity to see how retailers have come out of it so it may prove more attractive than it looks at the moment."

Emma Hill said Durante did not intend at present to make any material changes to the business of MHI or its subsidiaries, but it reserved the right to do so in future.

For the year to June, Michael Hill International reported a 60 per cent fall in after-tax annual profit to $26.5 million. This was achieved on a 7.6 per cent higher operating revenue of $443.3 million.