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Home Retail Shares Jump as Madison Dearborn Increases Stake

Home Retail Group Plc, the U.K. retailer that cut its profit forecast last month, rose the most in almost three months in London trading after U.S. investment firm Madison Dearborn Capital Partners increased its stake.

Home Retail, owner of the Argos chain and Homebase home-improvement stores, gained as much as 14.8 pence, or 7.2 percent, to 219.4 pence, the biggest intraday jump since Jan. 13. The stock has risen 10 percent this year, giving the company a market value of about 1.7 billion pounds ($2.8 billion).

Tradewinds Global Investors, controlled by Chicago-based Madison, held 4.25 percent of Home Retail’s voting rights as of the end of March, the retailer said yesterday. The stake was 3.2 percent in mid-March. Madison invests $100 million to $600 million in management buyouts and private-equity transactions, according to its website. Its U.S. consumer-industry holdings include a stake in Plano, Texas-based cinema chain Cinemark Inc.

“It takes a leap of faith, in our view, to invest in a company on speculation, when Home Retail’s profits have declined each year over the last four years at a time when Internet-channel sales have been very strong,” Freddie George, an analyst at Seymour Pierce, said today in an e-mail. He repeated his “hold” recommendation and 230 pence share-price estimate.

Earnings Outlook

Speculation of a bid for Home Retail has circulated “for a year or so,” Chris Walker, an analyst at Nomura, said by phone. Wal-Mart Stores Inc. has been mentioned as a possible bidder, though talk cooled after the retailer’s Asda chain said it was seeking less non-food outlets than Home Retail has, he said. Walker has a “reduce” rating on the U.K. retailer’s shares and a 180 pence share-price estimate.

Home Retail Chief Executive Officer Terry Duddy scaled back the profit outlook on March 10, saying “difficult and volatile” conditions were hurting sales at Argos. The Milton Keynes, England-based retailer cut the pretax profit forecast for the year ended Feb. 26 by as much as 15 million pounds to within a range of 250 million pounds to 255 million pounds. Home Retail is scheduled to release earnings figures on April 20.

Borrowed stock amounted to about 17 percent of Home Retail’s shares as of last week, according to Data Explorers, an indication of short-sellers’ bets against the stock. In a short sale, speculators borrow securities to sell them, on expectations they will be able to repurchase them at cheaper prices and earn a profit when returning the loan. Loans amounted to 2 percent of shares outstanding a year ago, the data show.

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