Experts feel Briscoe bid too low to succeed.

Briscoe Group

is unlikely to get an easy ride in its takeover bid for

Kathmandu

. The dual-listed outdoor apparel retailer has hired Goldman Sachs (which holds a 12.5 per cent stake in Kathmandu through various subsidiaries) as its adviser and there will almost certainly be push-back on the pricing of the deal.

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The takeover would give Briscoe, whose main brands are Briscoes and Rebel Sport, a presence across the Tasman and create an Australasian retailer with annual revenue of more than $900 million and an $847 million market capitalisation.

Briscoe managing director Rod Duke, one of the sharpest retail operators in this country, is just the man to lead such a firm. But questions are being raised about the scrip component of the offer, which would see Kathmandu shareholders receive 89.7 million Briscoe shares (in addition to $32.3 million in cash) in return for the remaining 80.1 per cent of the outdoor retailer.

"Kathmandu is heavily owned by Australian institutions," says Rickey Ward, New Zealand equity manager at JBWere. "They probably don't know an awful lot about Briscoe, so the fact they are using a lot of scrip will probably create a bit of a question mark."

Given Briscoe was sitting on an almost $90 million cash pile at the end of January, with no debt, plenty of scope exists for Briscoe to bump up the cash component of the offer.

Bigger bid required

Forsyth Barr says Briscoe will probably have to raise its bid - and possibly offer more cash - for it to be successful.

In a research note Forsyth analyst Chelsea Leadbetter said the offer, which amounts to around $1.80 per Kathmandu share, falls short of the brokerage's value range of $1.89 to $2.50, which is based on mergers and acquisition multiples in the Australasian retail sector.

She said the bid, which puts a $418.2 million enterprise value on Kathmandu, was attractive based on earnings multiples for the current financial year (roughly 15.5 times earnings), but the firm's presently "suppressed" earnings don't reflect its earnings potential.

She said Forsyth didn't expect the bid to be successful or the board to support it.

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Forsyth's head of private wealth research, Rob Mercer, says investors should wait for the independent report on the offer.

Another view

Craigs Investment Partners says some aspects of the deal are attractive and the pricing appears reasonable on an "all cash basis".

"While the timing can be described as opportunistic, coming after a year of disappointing trading and coinciding with the [new] CEO's second day on the job, it is unlikely that Kathmandu will see a rapid turnaround in its business," Craigs said in a note. "Kathmandu's long-standing sales model, centred on three key sales periods a year, has not resonated with Australian consumers over the last 12 months, creating a serious issue for the incoming CEO."

In March the company reported a net loss of $1.8 million compared with an $11.4 million profit in the same period a year earlier. Heavy discounting and difficult Christmas trading contributed to the result.

Craigs has a "hold" recommendation on Kathmandu shares, with a 12-month price target of $1.45, while Forsyth Barr has an "outperform" rating on the stock and a $2.30 target price.

Kathmandu shares closed up 1c at $1.74 last night, well up on the $1.27 closing low they reached last month. Briscoe finished the day up 4c at $2.84.

BurgerFuel close to decision on US store

BurgerFuel and CEO Josef Roberts are US-bound. Photo / Richard Robinson
BurgerFuel and CEO Josef Roberts are US-bound. Photo / Richard Robinson

An announcement on BurgerFuel's first US store could be imminent.

The NZAX-listed restaurant operator published an advertisement in the Herald this week for a competition whose prizes include a "trip of a lifetime" to the US, where the winners will "eat at the very first BurgerFuel USA!" Chief executive Josef Roberts said last month that the company was scouting potential US sites.

News of the company's US plans, announced early last year, sent BurgerFuel shares soaring.

Like cloud accounting software developer Xero, the company's valuation is pricing in the US potential and investors are counting on a successful roll-out in that country.

Roberts said last year that California, Texas and Connecticut were potential entry points for the firm.

BurgerFuel shares closed unchanged at $3 last night.