Retail jewel yields $311m

By IRENE CHAPPLE

The owners of Pascoes the Jewellers yesterday emerged as the surprise partner of Fisher & Paykel Appliances in the battle to buy the Farmers retail chain.

Yesterday's announcement that the retailer was sold - finally - came out of the blue.

A month ago Farmers' parent, Perth-based Foodland Associated, took the retailer off the block after six months of negotiations collapsed, apparently due to a price stand-off.

The final sale tag of $311 million was lower than the $320 million-plus Foodland is believed to have wanted.

But investors saw the deal as a good one for Foodland, pushing its shares up 5 per cent to A$18.85 yesterday. One analyst commented that "the price looks a little fulsome, but, on the other hand, it's not an insane purchase."

Other analysts reserved their judgment pending more information.

The buyers, however, seem very happy.

The deal is this: After settlement in a few weeks, Farmers will be owned by Hector Paskel, a subsidiary of James Pascoe.

That firm, owned by James Pascoe's granddaughter, Anne Norman, and husband David, will eventually split the business in two.

The retail side, costed at $122.3 million, will then be owned by James Pascoe, and Fisher & Paykel Appliances will buy the finance arm for $188.7 million and merge it into its own consumer finance unit.

The finance arm operates the highly profitable Farmers card and was seen during the sale process as the greatest prize.

There is a 20-year deal between the two buyers that gives Fisher & Paykel the exclusive rights to supply Farmers customers with finance.

Fisher & Paykel said the new business would produce annual earnings before interest and tax (ebitda) of between $24 million and $28 million.

Yesterday, Anne and David Norman - who are listed on the National Business Review Rich List at $125 million - declined interviews and a photograph request.

Mrs Norman said through a statement that "Farmers department stores are important to the New Zealand retail scene and we are pleased to return such an icon ... to Kiwi ownership".

The statement said the new owners would "work to enhance the product range and presentation of Farmers ... nationwide".

Further media responsibilities were offloaded onto the general manager of finances, Kevin Turner.

He was tight-lipped on detail, calling the company, which also employs some of the Normans' children, "very, very private".

However, James Pascoe does have a solid track record.

It was established in 1906 and owns 28 Pascoes and 12 Stewart Dawsons stores in New Zealand.

It bought Australian jeweller Prouds from statutory administrators seven years ago and rapidly returned the company, which was losing more than $10 million a year, to profit.

Turner said that James Pascoe understood retail and the New Zealand market and it was "a great opportunity for us."

He would not give details on how the purchase was funded except to say it was a "normal commercial arrangement".

He would not say what investments were planned for Farmers.

However, the management structure of Farmers retail, currently headed by chief executive Nick Lowe, is expected to remain intact.

Turner said refurbishment of Farmers into a collection of "store-within-a-store" initiatives, begun by Foodland partly to attract younger shoppers, would continue.

Meanwhile, Fisher & Paykel shares closed yesterday slightly higher as the market absorbed the news.

The managing director of Fisher & Paykel Finance, Alistair Macfarlane, said the deal was a union of three significant New Zealand companies but "as far as the person in the street is concerned, it is business as usual".

Ownership of Farmers' finance book gives Fisher & Paykel $550 million worth of loans from 600,000 customer accounts, split between cardholders and hire-purchase agreements.

"As you can see," said Macfarlane, "that is a substantial number of New Zealand households."

Fisher & Paykel intends to "increase the reasons for consumers to use the Farmers card ... We want to increase their buying power, therefore making them happy to use the Farmers card rather than alternative uses of credit."

Plans included offering incentives for consumers to use the Farmers card and promoting its use through third-party outlets such as supermarkets.

The two businesses would be streamlined together and Macfarlane said there would be duplication of jobs between the 125 Fisher & Paykel Finance staff and the hundred employed in finance by Farmers.

Some jobs would go but "we can't identify particular people or particular tasks and we will deal with that in due course".

The purchase was financed through a National Bank loan, which would be repaid from profits produced by the new business.

Macfarlane said the company paid a price it considered "the result of very successful negotiations" and that was within an valuation estimate provided to it by consulting group KPMG.

He described the deal with James Pascoe as "a long- term marriage that will restore Farmers to its former glory".