THE DISTILLERY: Retail Witchery

Country Road's purchase of Witchery Group marks the end of a gruelling sales process for its owner, Gresham Private Equity, which has had the retail business on the market for over a year – indicative of the wider problems facing the industry at large. This morning, jotters spill ink all over the break-even $172 million price tag, amid bets that Solomon Lew will continue clinging to its small stake in the buyer. Elsewhere, one scribe views Crown's west coast expansion as a challenge to regulators in the east, while another thinks the WA deal could be a blueprint.

But first, as Country Road launches a share sale to pay for its purchase of Witchery Group, Fairfax's Malcolm Maiden is sure Solomon Lew will opt to protect his minority stake in the bulked up retailer. After all, he's "been attached limpet-like to Country Road's share register for 14 years".

"Solomon Lew's son Peter built Witchery up and sold it to Gresham private equity in 2006 for $160 million and the family would see Witchery – the upmarket Mimco bag and accessories chain that was bought in 2007 after Gresham took over – and Country Road itself as potential acquisitions if the price is right, by the family company, ARI, or perhaps by their listed Premier-Just group. Woolworths has shown staying power too, but if it decides to sell, the Lews are in the box seat as long as they hold a blocking stake. Any other buyer would, like Woolworths, be unable to move to 100 per cent ownership."

At The Australian Financial Review, Chanticleer columnist Tony Boyd says the headline transaction is a good guide to current earnings multiples in the unlisted retail sector.

"The Country Road purchase puts an enterprise value on Mimco and Witchery of $172 million, which is a multiple of five times the $34 million in earnings before interest, tax, depreciation and amortisation. That multiple is a lot less than the multiples being demanded as recently as a year ago. Several transactions occurred in the 8 times EBITDA range before the global financial crisis."

Meanwhile, The Australian's Andrew White points out the sale price is roughly what Gresham paid for the businesses at the top of the market in 2007. He says that's a sign of how hard private equity groups "are having to run just to stand still."

"Given the frenzy of private equity buying in the boom times and the difficulty in selling businesses since then, there are still a lot of PE-backed companies needing to refinance their debts on less-attractive terms and lower multiples and owners having to bring down their price expectations. …Given the current environment, break-even looks a good result."

From one deal to another, James Packer yesterday inked an agreement with the West Australian government that will allow him to build a new six-star hotel beside his Perth casino, and also increase gaming operations there. Writing in The Australian, John Durie reckons the flashy announcement was aimed at regulators who hold the keys to his prized Sydney gaming market.

"NSW government approval is needed to split the Sydney casino licence. Yesterday's deal was a friendly reminder to the east coast premiers that Packer has other irons in the fire and they just happen to be in Australia's boom capital, Perth. Presumably this is meant to loosen the deal terms back east."

However, Business Spectator's Stephen Bartholomeusz suspects Packer's existing deals might frame future talks.

"Like the several deals Crown has struck with the Victorian and WA governments, where it has provided concessions in return for extra gaming capacity, there ought to be at least the outline of a win-win deal within the Echo-Crown relationship."

The Australian's mining guru Matthew Stevens turns to Nathan Tinkler's delay in funding a $28 million deal with coal junior Blackwood Corporation. He says Noble Group's intervention with a $5 million unsecured write-down facility is reassuring, which may calm shareholder nerves at Whitehaven – another of Tinkler's target's.

"What makes the Noble funding so indicative, for mine, is that it is repayable in six months, that it is unsecured and is enough to cover but one quarter of Blackwood's program. Plainly, Noble is telling us it expects the money to come."

Finally, Wayne Swan's latest speech, in which he channelled blue-collar rocker Bruce Springsteen, has been poorly received by commentators. At the Herald Sun Terry McCrann labelled it "inept, incoherent and utterly inappropriate."

And The Australian Financial Review's Jeniffer Hewett declares: "…while I am glad to know Swan still wears his passion on his Treasurer's sleeve, it's disconcerting that he also claims Springsteen as his political inspiration." The underlying point is that Swan has missed some major differences between the Australian and American economies.