Woolworths prepares to be spun off

August 1, 2001 Posted: 0834 GMT

LONDON, Aug 1 (Reuters) - European retail conglomerate Kingfisher Plc (KGF) on Wednesday finalised plans to give Woolworths, its toys, sweets and childrenswear high street chain its independence after 20 years.

Trading in Woolworths shares is expected to start on August 28. Kingfisher Chief Executive Geoff Mulcahy said brokers were putting a potential value of 300-500 million pounds on Woolworths, translating into about 30-40p a share.

Kingfisher shareholders will receive one Woolworths share for every share they hold. Its parent will not retain a stake.

The retailer has decided to spin off its general merchandise arm to focus on expanding its higher-growth home improvements and electricals businesses B&Q and Comet in Britain and sister companies Castorama and Darty in France.

In total, the demerger, which includes the sale of health and beauty retailer Superdrug, will raise 1.1 billion pounds for the group. The sale of properties owned by Woolworths is expected to follow shortly, the company said.

However, Kingfisher shares slipped 12 pence or three percent to 388p after underperforming the UK sector by 20 percent in the last six months.

Woolworths was floated on the London Stock Exchange before, when it was owned by a U.S. parent of the same name. It became a building block of Kingfisher's retailing empire when it was bought by Mulcahy in 1982.

UNDER PRESSURE

Woolworths has become Britain's leading retailer of entertainment products and sweets and is the market leader in toys. It is also the third biggest retailer of childrenswear in the UK.

But the chain is coming under increasing pressure from supermarkets who are muscling into its market areas. Margins are being squeezed and Kingfisher said Woolworths' underlying sales in July were down on last year.

Mulcahy told reporters recent sales had been hurt by the weather and timing of entertainment releases.

He said the current trade update should not be read as a profits warning, adding that Woolworths should achieve forecasts for pre-tax profits of around 50 million pounds this year, driven by positive underlying sales growth.

Iain Brown, a UK fund manager at Morley Fund Management, said ahead of Wednesday's announcement that an independent Woolworths has attractive qualities.

"We think the business is more attractive than we suspect the market does," Brown said, calling it a potential cash cow.

Brown said his fund, a top-five shareholder in Kingfisher, would be looking to buy stock in Woolworths but not immediately.

"Once the other institutions have dumped it, we'll step in," he said. "It's unlikely the small cap funds will want to hold the shares because it's not a growth stock. We suspect it will become orphaned." The floated Woolworths business will also emcompass Kingfisher's smaller Entertainment UK, MVC and Streets Online units but 85 percent of the group's profits and 80 percent of sales will be contributed by the Woolworths high street chain.

Former Railtrack boss Gerald Corbett will remain as Woolworths executive chairman. Christopher Rogers will be finance director and Keith Fleming managing director of the Woolworths chain.

Corbett will remain as executive chairman until a chief executive is appointed, when he will become part-time non-executive chairman. Mulcahy said a CEO would be on board as soon as possible but at most the process could take a year.

He declined to disclose Corbett's potential bonus for completing the demerger, saying it would not be decided until the listing is complete. A potential bonus of 500,000 pounds has caused controversy after Corbett accepted a 1.4 million pound pay-off from Railtrack when he left after a cracked rail was blamed for a fatal train crash last October.

Mulchay denied he had fallen out with Corbett about the demerger. "There's been a lot of garbage in the press," he said.

"I have a good relationship wth Gerald, reports of arguments are totally untrue."

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