Advent Offers $1.9 Billion to Buy Beauty Retailer Douglas
Advent International Corp., the U.S. owner of the Gerard Darel fashion brand, bid 1.5 billion euros ($1.9 billion) for Douglas Holding AG (DOU), bringing a takeover of the German retailer closer after almost a year of talks.
The buyout firm offered 38 euros a share in cash, about 9.2 percent more than the last closing price before the bid. The retailer’s three largest shareholders have a binding commitment to accept the bid, and Advent has secured 50.5 percent of Douglas’s stock, the U.S. company said.
Douglas, based in the Ruhr Valley town of Hagen, said this month that earnings before taxes, interest, depreciation and amortization probably fell in the year ended Sept. 30 as a consumer shift to buying publications online hurt the Thalia bookstore chain. Full-year revenue growth of 1.7 percent was propelled by the Christ jewelry unit and helped by Douglas-brand perfume outlets.
The takeover’s “main objective is to accelerate the growth of the perfume and jewelry division jointly with the management,” Boston-based Advent said today in a separate statement. “With regard to the book business, the partners will actively pursue the restructuring and strategic repositioning to make the division fit for the future.”
The Kreke family that founded Douglas will hold 20 percent in the company, Advent said. The minimum acceptance threshold will be 75 percent, it said. The buyout firm hopes to have investor approval and antitrust clearance by the end of 2012, Ranjan Sen, head of Advent’s operations in Frankfurt, said today on a conference call with journalists.
Douglas rose 8.1 percent to 37.62 euros, the biggest increase since the company said it’s in talks with financial investors on a possible acquisition on Jan. 12. The stock has gained 35 percent this year.
“The biggest challenge that Advent faces is Thalia’s restructuring,” Klaus Kraenzle, an analyst at Silvia Quandt & Cie. in Frankfurt, said in a phone interview. “It might be achievable in the mid-to-long-term, but it’s going to be very difficult. It’s impossible to sell Thalia at the moment.”
Advent is paying a multiple of 7.19 times earnings before interest, taxes, depreciation and amortization based on income from the last 12 months, according to data compiled by Bloomberg. That compares to a median multiple of 7.58 times Ebitda in western European retail transactions this year, according to the data.
A takeover bid with a valuation based on the estimated 2013 price to earnings ratio of 20 times is “an attractive price for a nearly non-growing retail company with significant restructuring needs,” said Volker Bosse, a Frankfurt-based analyst at Baader Bank, in a report to investors.
Ebitda for the year through September was at the lower end of Douglas’s forecast range of 200 million euros to 250 million euros because of restructuring costs at Thalia, the company said Oct. 9. That compares with earnings of 292.9 million euros in the previous fiscal year. Sales rose to 3.44 billion euros, led by gains of 9.6 percent at the Christ chain and 2.4 percent at the Douglas brand. Revenue at Thalia fell 2.1 percent.
Douglas said in March that a study on Thalia showed the unit would need to reduce space, including through branch closings.
The Kreke family and Advent stand behind Thalia management’s reorganization strategy, Chief Executive Officer Henning Kreke said on the conference call.
Advent has outlasted buyout firms BC Partners Holdings Ltd., Apax Partners LLP and Permira Advisers LLP to reach a preliminary agreement with the Kreke family, which will retain a management role, as well as consent from the biggest shareholder and food producer Dr. Oetker Group and drugstore chain owner Erwin Mueller.
Goldman Sachs Group Inc. advised Advent and JPMorgan Chase & Co., Credit Suisse Group AG and Goldman are among lenders providing financing to the buyout firm.
Oetker, a closely held food producer based in Bielefeld, Germany, is Douglas’s biggest shareholder with a 25.8 percent stake. Mueller, the owner of the Mueller Grosshandels Ltd. drugstore chain in Germany, holds 10.8 percent of Douglas stock, as well as options for more shares, while the Kreke family owns 12.7 percent, according to data compiled by Bloomberg.
Talks with other financial investors to help the Kreke family delist Douglas faltered earlier this year amid doubts about the support of Mueller and Oetker Group, according to people with knowledge of the matter.
Advent has experience in the German market after buying the Takko discount clothing chain in 2007 and selling it in 2010.
Douglas has more than 2,000 stores with a workforce exceeding 25,000 employees in 17 European countries, according to its website. Other brands owned by the company include AppelrathCuepper fashion stores, which reported a 1.9 percent decline in fiscal-2012 revenue, and Hussel confectioneries, which posted a 1.7 percent increase.
Revenue in Germany in the last fiscal year rose 2.7 percent. Sales outside Douglas’s home market, excluding the effects of a disposal in Russia, increased 1.3 percent. CEO Kreke said today that the retailer will grow abroad through acquisitions “where it makes sense.”