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Dan White: Takeover by banks means Arnotts is set to be put on market

Anglo Irish and Ulster Banks have taken control of Arnotts, which owes €260m. How could the iconic Dublin retailer have ended up in this sorry situation and what will it mean for shoppers?

Founded in 1843 Arnotts has been controlled by the Nesbitt family for most of its 167-year existence. It has become synonymous with Dublin, even meriting a mention in James Joyce's novel Ulysses. In recent years Arnotts' status as the Dublin department store was further enhanced by its sponsorship of the Dublin GAA teams.

Arnotts' problems date back to 2003. In that year, facing a hostile takeover bid from a private equity group, the Nesbitt and O'Connor families paid €257m, most of it borrowed, to take Arnotts off the Stock Exchange and turn it into a private company.



QUARTER

Then, instead of taking advantage of the retail boom of the Celtic Tiger years to pay down this enormous debt, Arnotts went for double or quits. It announced ambitious plans for a "Northern Quarter" on a 5.5-acre site which, with the exception for the GPO, would have included most of the Henry Street/O'Connell Street/ Abbey Street/Liffey Street city block. This whole area was to be redeveloped to include apartment blocks, hotels, shops, entertainment with the whole lot being topped off with a 16-storey tower block.

Disagreements over the Northern Quarter project seem to have triggered the departure of the O'Connor family, who had been investors in Arnotts for the previous 60 years. In May 2006 they lobbed in a €200m takeover bid. This was followed a few weeks later by the news that the O'Connors' 24.75pc stake had been bought out for at least €40m.

In retrospect it can be seen that the O'Connors' exit from Arnotts was perfectly timed. Retail sales peaked in 2007 and have since fallen by more than a fifth, hitting Arnotts hard.

The retail downturn was accompanied by the virtual collapse of the Irish banking system, leaving Arnotts and its €750m plans for the Northern Quarter doubly vulnerable. It didn't help matters that its partner in the project, Boundary Capital, has been having its own financial problems.

So what does the news that Arnotts' bankers, Anglo Irish and Ulster, have taken control of the company mean? Although the full details have yet to emerge it appears that, with the company experiencing difficulty repaying its massive €260m of borrowings, the two banks have exercised their right to convert some or all of their loans into shares.

What this means is that from a strictly legal standpoint is merely that control of the company has passed from the old shareholders, the Nesbitts and Boundary, to the new shareholders, Anglo and Ulster.

As a result, Arnotts customers are unlikely to notice any change in the short term - Arnotts vouchers are good and anyone who has paid a deposit for an item is not at any risk of losing their money.

That's the good news.

The bad news is that this is the end of an era for Arnotts. Anglo and Ulster are not retailers.

STANDARD

The Government has enough problems with the now-nationalised Anglo to want it to remain in charge of Dublin's most prominent retailer for any length of time.

Further complicating matters for Arnotts is that Ulster Bank, which is owned by UK bank RBS, is not selling any of its bad loans to NAMA. This leaves it free to pursue a much tougher line with Arnotts. Ulster will play hard-ball in order to recover as much as possible of its money.

After a decent interval the company will be sold, most likely to one of the large British retailers. This will result in the gradual extinction of Arnotts' unique identity leaving Dublin City centre looking and feeling even more like a standard-issue UK high street.


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