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Why Brown Thomas could be eyeing up an Arnotts bargain

With the banks now in the driving seat at Arnotts it is inevitable that Dublin's oldest and largest department store is about to change hands after more than 130 years. So who will buy it?

The only surprise about the news that Anglo Irish and Ulster Banks are about to take control of Arnotts, which owes them at least €260m, is that anyone was surprised.

Ever since Boundary Capital told its shareholders last February that they were unlikely to receive any value from Boundary's 28pc Arnotts stake, it has been clear to observers that the game was up for the retailer.



diluted

Now the banks have moved in for the kill. With Arnotts unable to meet the repayments on its massive debts, they are converting at least some of these borrowings into shares.

This means that the existing Arnotts shareholders, which apart from Boundary also include the Nesbitt family that has controlled the company since the late 1800s, will see their shareholdings either massively diluted or possibly wiped out altogether.

The banks have enough on their plates running their banking operations. They are unlikely to want to retain a controlling stake in Arnotts. Lending money, not retailing, is their core business. Anyway, retailing is a cash-intensive business with huge amounts of money tied up in stocks and working capital.

This means that the banks are likely to want to recover as much of the money they have lent Arnotts as possible by selling the retailer.

The good news for the banks, if not for Dublin shoppers, is that even in the current depressed retailing environment there is likely to be plenty of interest in Arnotts. Retailers of this calibre don't come up for sale every day.

For those of a historical frame of mind it is worth remembering that this is the first time in its 167-year history that Arnotts has come on the market.

So who are the likely Arnotts buyers? The up-market UK retailers are the most likely suspects. Arnotts would be an almost perfect fit for the John Lewis Partnership.

John Lewis would almost certainly be the Arnotts' workers favourite buyer as, although it is one of the UK's best retailers, it is owned by its staff and has a well-justified reputation of treating its people well.

From the point of view of the Arnotts staff, a John Lewis purchase would be a fairytale ending to their current nightmare.

John Lewis is likely to have plenty of competition when it comes to buying Arnotts. Other likely purchasers include Harvey Nichols and House of Fraser.

House of Fraser, which recently re-entered the Irish market opening a shop in Dundrum, already has plenty of experience of the Irish market. It was the owner of the Switzer chain of department stores which were sold to Brown Thomas in the 1990s.

Harvey Nichols also has a presence in the Irish market with an outlet in Dundrum.

There is, however, one other possible buyer lurking in the long grass. One that, even if it isn't strictly speaking Irish-owned, nevertheless has a distinctive green hue. That is of course the Canadian-owned Brown Thomas.



grandiose

Arnotts would be an ideal purchase for BT. It would at a stroke fill in the major geographical hole, north Dublin city centre, in its store network. BT could also be relied upon to preserve Arnotts' unique character rather than trying to impose an alien UK model.

Regardless of whoever the eventual purchaser turns out to be, they will only be interested in Arnotts existing retail operations.

In the current climate, no buyer is going to want to acquire the grandiose Northern Quarter project.

This means that, no matter how much they succeed in selling the retailer for, the banks will be nursing major Arnotts losses for years to come.


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