Buzz over bookstore float

Australian and New Zealand book retailer REDgroup – which owns Whitcoulls and Borders – has set the market abuzz with talk that its private equity owners will float the business before Christmas on the back of a 301 per cent rise in pre-tax earnings.

REDgroup is the collective brand name for Whitcoulls in New Zealand, Angus & Robertson in Australia, Borders Asia-Pacific, Supanews and Calendar Club.

The company lifted its earnings before interest tax and depreciation (ebitda) to A$42.2 million ($52.81m) in the year to August 2009, up from A$14.1m ($19.06m) last year.

The group's revenue was up 50 per cent on last year at A$645.03m ($807.38m), albeit off a larger base after the acquisition of 30 Borders stores (23 in Australia, five in New Zealand and two in Singapore).

The integration of these stores into the business and other write-downs caused a bottom line loss of A$15.23m last year.

But the consensus of some analysts, who did not want to be named, was that potential investors in the business were interested only in the pre-tax earnings, not debt.

REDgroup is owned by private equity firm Pacific Equity Partners. PEP declined to comment on whether it had any plans for an IPO or whether it would entertain a private buyer.

REDgroup is presently listed on the NZX debt market.

"This group now has diversity and a strong position in the market," it said in a statement to the NZX.

"We also have a great team in place from the store level right up through the support office." Despite the economic downturn, REDgroup had grown revenue across all its brands, it said.

The Borders book chain integration accounted for A$12.6m of the one-off costs of A$22.8m.

The company attributed much higher sales to books and music being affordable entertainment during tough times.

REDgroup executive chairman Rod Walker said bringing the businesses together meant management had been able to improve efficiency and reduce costs.

Whitcoulls was delisted as a public company in 1996 when Graeme Hart's Rank Group bought out the remaining shares in the company he did not own. He sold the chain to British book and stationery retailer WH Smith which sold it to PEP in 2004.

Other private equity firms in Australia tipped to be eyeing exit strategies following US buyout group TPG's launch this week of Myer's A$2.4 billion float and the pending IPO of Kathmandu are owners of Rebel Sports – part of the Ascendia Retail group – retailer Colorado Group, car parts distributor Repco and Independent Liquor.

The latter is another PEP company with most of its business in New Zealand, though it has been hit hard in the last year by the Australian Government's stiff rise in ready-to-drink tax introduced to deter young drinkers.

- © Fairfax NZ News