Hunter gives up fight with Tesco, agreeing to sell Dobbies stake

SCOTLAND'S richest man yesterday suffered a major setback to his ambition to expand his retail empire, bowing to pressure and abandoning his interest in Dobbies.

Sir Tom Hunter agreed to accept an offer from Tesco of 1,200p a share – below the 1,500p that was on offer from the retail giant last year – for his 29 per cent stake in the garden centre chain.

Last night business sources said that Hunter, who also has stakes in House of Fraser and Bhs, had lost nearly £10 million in the deal, though that was disputed by the tycoon's allies.

In a statement issued yesterday, Hunter's investment company, West Coast Capital (WCC), said it had "irrevocably agreed" to accept Tesco's offer to buy its shareholding, which will give the retailer almost 95 per cent of Dobbies.

The sale came just days after the billionaire lost a bitter court battle to block Dobbies from launching an "open offer" share issue to raise £150m.

Tesco will now be able to remove Dobbies' shares from London's Alternative Investment Market and force the remaining shareholders to accept the offer.

Last night it was claimed that Hunter had lost almost £9.1m in the sale, having paid an average of almost 1,500p a share.

But sources close to the tycoon countered that the deal would leave WCC "with just a marginal loss or gain" once the balance sheets had been drawn up. Hunter will get £36.3m from the sale of his 3.02 million shares.

Beyond the dispute over whether he had suffered financially, it was clear last night that Hunter's ambition to build on his retail interests, which also include the Wyevale garden centre chain, had suffered a setback.

Hunter, who made his fortune when he sold the Sports Division chain to JJB sports in 1998, pocketing £250m, has since invested in retail and house-building.

In last week's courtroom wrangle, WCC's lawyers claimed Tesco was using the rights issue to force Hunter into selling his share of the company, which he refused to give up when Tesco bought a 65 per cent stake in the company last summer.

The offer puts Dobbies' rights issue plans in doubt – Dobbies suspended a formal vote on the cash call at yesterday's annual general meeting.

James Barnes, the chief executive of Dobbies, told The Scotsman yesterday that Hunter's decision to sell-up had come late on Tuesday afternoon, giving Dobbies little time to make a decision. Private shareholders said they were unhappy that the company was to be taken over.

The latest offer is at a 20 per cent discount to Tesco's bid of 1,500p a share made last year, but Barnes said the board would still consider recommending it to shareholders. But he said, even under the ownership of Tesco, Dobbies would need a large amount of cash to fund growth.

Asked if the rights issue was simply a tactic to muscle out remaining shareholders, Barnes said that issue was dealt with in court last week.

He added: "All I can say is that we are a company with ambitious growth plans and we need substantial resources to execute those plans."

In a statement, the supermarket group said it was "delighted" to be acquiring WCC's shares in Dobbies, saying it had always wanted to own as much as possible of the business.

It said: "Dobbies is a great business born in Scotland with a unique brand heritage and culture which we will retain. It has an exciting future under the Tesco Group umbrella."

Hunter's camp refused to comment on yesterday's developments beyond confirming that it had agreed to sell its shares to Tesco, claiming it was prevented from commenting by the Takeover Panel.

Now Hunter can prove his mettle

ANALYSIS: BILL JAMIESON

A BRAVE stand for oppressed small investors? Or a costly and foredoomed debacle?

Yesterday Sir Tom Hunter, sold his 29.2 per stake in Dobbies for £12 a share. That compares with the £15 that supermarket giant Tesco had earlier offered to Scotland's wealthiest entrepreneur – before he chose to take it to court over its hefty rights issue proposal.

One thing is for sure. Hunter will waste little time over bruised feelings and the pain of this pinch to his corporate wallet.

Through his vehicle, West Coast Capital, he has barely paused for breath in recent years, with a blizzard of acquisitions and stake-building deals..

Since 2004 there has been a blistering pace of corporate activity.

He bought greetings card concern Birthdays for £80 million; built up, then cashed in, then re-acquired through Icelandic business concern Baugur a 10 per cent stake in House of Fraser; bought Wyevale Garden Centres for £311m; successfully bid £1.1 billion for retirement home group McCarthy & Stone (this, as with many other deals, in partnership with Bank of Scotland corporate).

He ploughed £20m into Livingston-based fashion chain USC to augment his existing retail operations including Office and Qube; invested £15m in Merlin Biosciences; bought a 29 per cent stake in home-shopping company Flying Brands; lost out on a bid to buy housebuilder Wilson Bowden but went on to acquire Crest Nicholson for £715m.

He bought Blooms of Bessingham for £30m, bought a portfolio of hospitals (again in partnership with Bank of Scotland and Nick Breslau) for £686m; invested £10m in a green energy fund run by Sigma Capital; bought Heighley Gate garden centre in the north-east of England for Wyevale, and built up (and has now just sold) a 29.3 per stake in Dobbies for £36m.

Just in case you thought it could not get any more hectic, he cooly declared earlier this year that he is "actively looking" for a major retail or property investment opportunity, as if the past five years was all a dawdle.

All of this frenetic activity has been interspersed with philanthropic giving that has made him one of the most respected figures in Scottish business life.

On the business front. his two favourite sectors have been retailing and property.

Both are now suffering real pain as the effects of the credit crunch spread out from a stricken housing sector right across the economy.

The commercial-property sector has been hit by price falls of between 15 per cent and 25 per cent.

While deals are still being done, and some areas such as Scotland have so far been lightly affected, the pain is likely to continue given the signals from the Bank of England last week that its prime preoccupation is fighting inflation and that further interest rate cuts will have to wait.

Crest Nicholson has been in the eye of the housebuilding storm and has recently announced a shake-out of one in ten of its workforce as new home starts have slumped.

Retail results, which have held up surprisingly well so far this year, are expected to be knocked in the second half as consumer spending slows.

Even Dobbies has not proved immune. The company said yesterday that like-for-like sales fell 6.8 per cent in the six months to the end of April.

Though recent weeks have seen an upturn due to warmer weather and price discounting, the group is facing a tough autumn and winter when it relies on non-seasonal sales to see it through.

None of this should surprise Hunter. Few fingers are in more pies, and few closer to the economic pulse than his.

He recently warned that this slowdown is likely to extend into 2010.

So what is he likely to do now? More of the same, I suspect.

Successful entrepreneurs never really come into their own until they have experienced a downturn in the business cycle such as we are experiencing now.

This is the period when the more ambitious expansions and over-geared ambitions of the previous upturn come crashing to the ground. It is a distinctly unnerving period for anyone in business. What seemed to be money-spinning certainties in the run-up to the top of the cycle quickly come to look like hopeless follies.

Sales and profits tumble, prices crash, investors withdraw into cash, and the cycle, having passed through the phases of Confidence, Exuberance and Doubt, now hits the two worst periods of all : Panic and Funk.

But these are just the phases when true entrepreneurs are at their most active. They pick up businesses at bargain-basement prices, close down the chronically loss-making activities, then restructure and re-capitalise for the upturn that will inevitably come.

Joseph Schumpeter, that most brilliant of economists, whose work on business cycles has not been bettered, gave us the concept of "creative destruction" to describe the way in which the excesses of the previous upturn are brought down, shaken out, and re-equipped with new ideas for the upturn. In this Hunter will be both a victim and, with his cash resources, an opportunistic winner.

The one big question mark is whether a now-chastened Bank of Scotland Corporate will be able to support the pace and scale of deals he has in mind. Only time will tell.

TIMELINE

14 June 2006 – Sir Tom Hunter's WCC buys a 3.7 per cent stake in Dobbies, sparking speculation that he may eventually take over the chain, to add to his rival Wyevale garden centre offering.

3 August 2006 to 13 June 2007 – WCC increases its stake to 20.6 per cent.

13 February 2007 – Hunter in £30 million takeover of the ten-strong Blooms of Bressingham garden centre chain.

8 June 2007 – Tesco is a surprise bidder for Dobbies, launching a £155.6m offer.

20 June 2007 – Hunter ups his stake to 25.57 per cent, blocking Tesco from being able to own a large enough stake to take the company private.

9 August 2007 – Hunter pulls out of bidding war for Dobbies.

10 August 2007 – Hunter ups his stake to 27 per cent. He further increases his stake to 29 per cent on 20 August.

28 September 2007 – Tesco takes control of Dobbies' board.

9 April 2008 – It proposes a £150m "open offer" of shares.

12 May 2008 – Hunter appeals – unsuccessfully – to the Court of Session for an interdict to stop Tesco holding the open offer.