Australian clothing brands Rivers, Millers, Katies and City Chic appear set to fall into foreign hands following a $135 million indicative offer for fashion and accessories retailer Specialty Fashion Group.
Specialty Fashion Group confirmed a Street Talk report that it it was in advanced talks with a Middle Eastern investment company - believed to be a sovereign wealth fund - over a privatisation bid.
SFG said it had received an indicative and non-binding proposal from the unnamed bidder pitched at 70¢ a share, valuing the company at $135 million.
This represents a 35 per cent premium to SFG's closing price on Tuesday of 52¢ a share but is on par with its 2016 high of 70.5¢.
SFG has granted the group access to due diligence but said the proposal remained subject to a number of conditions, including the execution of binding transaction documents, and there was no certainty the proposal would result in a transaction being consummated.
It is understood that SFG chief executive Gary Perlstein, who owns 9.1 per cent of the shares, and Geelong-based global apparel company Cotton On Group, which own 20.15 per cent, are in favour of the deal.
"The dialogue has been going on for a little while - (SFG) is better off in private hands," one source close to the company said.
SFG said it would provide further updates to the market as appropriate and investors should take no action at this stage.
Specialty Fashion operates almost 1100 stores under brands such as Millers, Katies, Crossroads, Rivers, Katies and City Chic.
Specialty Fashion's total sales have climbed steadily over the past 10 years from $510 million to $826 million, but the company is earning a fraction of what it was before global chains such as Zara, H&M; and Uniqlo arrived in Australia.
SFG's brands are struggling to compete on price, speed to market and fashionability with the global chains, which racked up combined sales of more than $600 million in 2016.
SFG earned just $4 million before interest and tax in 2016 compared with $76 million in 2006 and margins have fallen to a fraction of those at other apparel retailers such as Premier Investments.
Specialty Fashion has racked up five consecutive six-month periods of positive same-store sales, but the company lost a net $4.5 million in 2015 and $2.2 million in 2016 due to losses at budget brand Rivers and weaker gross margins in its core labels.
Specialty Fashion is being advised by boutique advisory firm Luminis Partners and Arnold Bloch Leibler, while PwC and Barry Lewin of SLM Corporate are advising the bidder.
More to come.
