Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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More than 30 buyers lined up for a shot at Dick Smith — receivers

PLUS: How did the retain chain suddenly owe $340 million? UPDATED with comments from Rod Duke.

Sat, 09 Jan 2016

More than 30 parties have shown an interest in buying Dick Smith, its receivers say in a letter to staff that was leaked to media (see full letter below).

The receivers (James Stewart, Jim Sarantinos and Ryan Eagle of Ferrier Hodgson) say that's encouraging given that they have yet to formally put the business up for sale. Advertisements will be placed next week. The receivers — as per their public announcements yesterday — say the process "will continue well into February". As expected, that eliminates any possibility a buyer could negotiate to continue Dick Smith's Auckland Nines sponsorship.

The receivers don't name any of the interested parties. Analysts pitch consumer electronics rivals JB Hi-Fi, Harvey Norman and The Good Guys as obvious candidates. Heading off a Dick Smith inventory firesale would be one motivation for the trio. JB Hi-Fi had a solid 2015, with weaker NZ results offset by gains across the Tasman.

LZR Partners sees a potential out-of-category buyer: the ASX-listed Super Retail Group, which has a number of retail chains in its stable including Super Cheap Auto.

Earlier, the receivers implied Dick Smith's fully-owned NZ subsidiary, DSE NZ, could be sold separately with the line in a statement to press that "Mr Stewart said that the New Zealand business was profitable and expected it would be attractive to potential buyers." (Ferrier Hodgson, which has been appointed receiver for Dick Smith and all related entities, including DSE NZ, has yet to respond to NBR questions.) Such a move could draw local retail players like Briscoes director Rod Duke into the frame.

[UPDATE: Mr Duke tells NBR he never confirms or denies deal speculation. But he did drop broad hints about his thinking, saying "I had no interest in the IPO and noting Harvey Norman executive chairman Gerry Harvey is "a close personal friend, which would complicate things." Would he be more inclined to have a look at Dick Smith NZ if Harvey Norman bought Dick Smith Australia? Mr Duke said while he could not speak on behalf of Mr Harvey, his impression was "It is nigh on impossible that Gerry would contemplate that."]

For its 2015 financial year (ending June 28) DSE NZ reported its net profit had fallen to $A903,000 ($1.01m), a drop from 2014 when it finished the year $A3.2 million ($3.6m) in the black.

Revenue fell 6.9% to $A166.6 million.

Group-wide, profit rose 3.1% to $A43.4 million on a 7.5% increase in sales to $A1.3 billion. However, September and October saw Dick Smith announce a shock $A60 million inventory write-down, issue a profit downgrade then ultimately abandon its profit guidance altogether.

Dick Smith has 393 stores, including 54 in NZ. The stores continue to trade, with staff kept on payroll under the same terms and conditions.

Debt spike
Australian media is reporting that at the time of Dick Smith owed more than $140 million to its banks (its annual report says it has loan facilities up to $A135 million) plus more than $A200 million to creditors. Un-named insiders told AFR that was just a usual Christmas time spike (certainly, it's well up on the $A70.5 million in total loans and borrowings as of June 28 this year, listed in the company's most recent annual report) and that lead banks NAB and HSBC were too hasty in stepping in.

On a related theme, Forager Funds has questioned whether banks timed the receivership for the retail chain's maximum cash point, plus the timing of a December gift card promotion.

The receivers have yet to make any public comment on Dick Smith's debt at the time of its receivership, or how much they think they can claw back for creditors (chairman Rob Murray did confirm in a public statement to the ASX that the retail chain was unable to restructure its debt, leaving it unable to buy stock over the next four to six weeks).

BELOW: Ferrier Hodgson's latest update to Dick Smith staff:

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More than 30 buyers lined up for a shot at Dick Smith — receivers