Colorado Group Limited
Recommendation
It would be an understatement to say that the takeover of this footwear retailer did not go entirely to plan. When the offer closed in November, Affinity Equity Partners owned only 83.7% of the company: below the magic 90% threshold that would have enabled it to compulsorily acquire all remaining shares.
Thwarting the deal was retailing legend Solomon Lew. He bought a 10.2% stake in September, essentially blocking the takeover. His intentions towards Colorado aren’t clear, but he’s been involved in a similar scrap with Country Road – a saga that has dragged on for many years.
Affinity is trying to keep things moving as if he wasn’t there. After appointing new management, the private equity group is now loading up the company’s formerly pristine balance sheet with debt. The company has proposed a capital return of 52 cents per share, which follows dividends of 70 cents in 2006.
For those who didn’t get around to accepting the takeover offer, as we recommended on 26 Sep 06 (Accept Offer – $4.20), you now own a stock that is rather illiquid, with two shareholders controlling 93.9% of the company. You might wish to wait for a higher offer from Affinity, or continue to own shares while they gear the company up and pay out a few more capital returns. But you’ll be in alongside a patient Solly Lew, so it’s likely to be a protracted affair. We don't fancy being in such a position and recommend minority shareholders SELL. Given the illiquid nature of the stock, we’re also taking this opportunity to CEASE COVERAGE.
Tim Searles