Tesco is surprise bidder for Dobbies

Top supermarket Tesco has emerged as the frontrunner to buy Dobbies Garden Centres with a decent offer of 1,500p a share. Tesco has also grabbed a quarter of the shares.

Morningstar.co.uk Editors 8 June, 2007 | 10:21AM
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Tesco’s offer values Dobbies at £155.6m and the Dobbies board is backing the bid. Tesco has agreed to buy 6.2% of Dobbies shares, has an option to buy a further 16.4% and has irrevocable commitments to accept for another 2.7%.

That makes a total of 25.3% already committed to the deal even if a higher offer emerges.

Tesco chief executive Sir Terry Leahy reckons Dobbies is an exciting opportunity as ‘an excellent business with a first-class management team and a great brand that we will retain and develop from its Scottish base’.

He sees the increasing popularity of gardening as a way of establishing Tesco’s green credentials.

There is no doubt that Dobbies will become a serious competitor to the larger Wyevale Garden Centres if the takeover goes through. Tesco knows only one thing to do with its chain, and that is to grow it, so we can look forward to the cash needed for expansion to be provided.

Dobbies revealed on 30 May that it had received an approach but speculation has centred on retail entrepreneur Tom Hunter and private equity group Apax.

Hunter joined forces with Iceland's Baugar last April to take Wyevale private for £311m and he already has a 10.6% stake in Dobbies through his West Coast Capital vehicle.

Apax Partners bought Scandinavian garden centre chain Plantagen recently and is believed to have held talks with Dobbies. Still, what Tesco wants Tesco usually gets and there should be no competition issues in this takeover. The offer depends on 75% acceptances, so Hunter does not have a large enough holding to block it.

Dobbies shares jumped 145p to 1492.5p this morning, indicating that the City does not expect a higher competiting bid. Shareholders do not need to rush to get out, though, just in case a competing offer emerges.

The takeover news overshadowed interim results from Dobbies to the end of April which showed underlying profits up from £1.8m to £2.6m. There is no interim dividend because of the bid.

Like-for-like sales were boosted by early warm weather and although they slipped by 7% in unseasonally cold May they are still 7% ahead for the year so far.

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