The directors of the iconic Kiwi department store Kirkcaldie & Stains have recommended to the company’s shareholders to reject Mercantile NZ Ltd.’s takeover bid, stating Mercantile chair Ron Brierley’s offer, “remains at a level which the directors are presently unable to recommend”.
The company’s directors told shareholders to defer any decision regarding the offer for the time being as they await further information and clarification regarding Kirkcaldie & Stains lease issues.
“Over the next six weeks there are strong prospects that the position with respect to the Petone lease and the Pantry lease will be clarified, and this will possibly also be the case for the Thorndon Quay lease,” said Kirkcaldie & Stains chair, Flacon Clouston, in a statement to shareholders.
“Clarity on the company’s residual liability under these leases will provide shareholders with a much greater degree of certainty as to the likely level of cash available for distribution to shareholders in a liquidation, and therefore a more certain context in which to assess the merits of Mercantile’s,” Clouston said.
The company remained firm in its decision despite its failed transactions regarding the Petone lease. The company negotiated with the landlord of the Petone premises on February 28 to exit their lease before its April 30, 2023 expiry date on the condition the landlord would be able to sell the property. But on April 1, Kirkcaldie & Stains were advised the landlord failed to sell the building. Mercantile yesterday upped its takeover bid for Kirkcaldie & Stains to $3.00 per share and has extended the offer to June 12.
“That estimate is now very relevant as a result of the Petone lease deal falling over and Kirks being on the hook for a payout nearly $1.5 million over the next seven years,” Brierley stated.
Liquidation is more than a year away and, if it becomes controversial, costs could skyrocket above the $100,000 provided. Clouston said Kirkcaldie & Stains has already prepared for the worst case scenario.
“The board is optimistic that it can secure a transaction which will substantially mitigate the company’s exposure under the Petone Lease. This would likely materially raise the level of the low range estimate provided by the directors.”
The directors also stated they are optimistic the Pantry and Thorndon Quay leases will be successfully exited on terms which would also lift the low end scenario.
Clouston said if the original transaction regarding the Petone lease had proceeded (independently of successful resolutions of the Pantry lease and the Thorndon Quay lease with all other assumptions as per paragraph 21.2 of the Target Company Statement unchanged), then the low range of the directors’ assessment of value available to shareholders in a liquidation would have increased to $3.49.
“If a similar transaction is concluded and the Pantry transaction is declared unconditional, then that low range climbs to $3.58,” Clouston added.
Clouston also said they have started the process of consultation with David Jones as to the possible names and timing for the required change. David Jones has settled an agreement to take on the assigned lease of Lambton Quay in Wellington and pay $400,000 cash for the name “Kirkcaldie & Stains”.
Kirkcaldie & Stains shareholders voted July last year to sell the struggling brand and assign the store lease to David Jones, in a deal worth $400,000 with an option to purchase its fixed assets for $500,000 that it didn’t take up. The move followed a seven-year period of losses for the struggling Wellington company.
