LONDON (Thomson Financial) - Kingfisher Plc, Europe's biggest home improvement retailer, said Friday it has moved to cut its 1.5 billion pounds debt burden by agreeing to sell its Castorama Italy business to Groupe Adeo SA, the privately owned French DIY group that owns Leroy Merlin, for 560 million euros (440 million pounds), sending its shares nearly 5 percent higher.
Analysts said Kingfisher, which owns the B&Q chain in the UK and Castorama in France, had got a good price for the 31-store Italian business, securing a premium over and above its 345 million pounds of property despite the bleak outlook for the Italian economy.
Castorama Italy made a year to Feb 2, 2008 retail profit of 29 million pounds on sales of 314 million pounds. Leroy Merlin is the market leader in Italy with 4 percent. The deal will boost its share to 7 percent.
The exact payment Kingfisher will receive will be adjusted for profit generated from July 1 to completion, expected in the fourth quarter of 2008.
'This sale is consistent with our aim of delivering a step-change in shareholder value and is a good deal at this point in the economic cycle,' said Kingfisher chief executive Ian Cheshire, who succeeded Gerry Murphy in February and in June launched a seven-point three to four year recovery plan.
'We have built a successful and profitable business in Italy which now needs more capital to continue its development. We believe we can achieve higher incremental returns on capital elsewhere in Europe and strengthen our balance sheet by reducing our net debt.'
As of May 3 Kingfisher's net debt was 1.5 billion pounds, down from 1.6 billion pounds on Feb. 2. Cheshire has set a target of flat net debt for the year to end-Jan 2009 -- a figure which excludes disposals.
Nick Bubb, analyst at Pali International, said 440 million pounds represents 'a very good price for a non-core asset'. Credit Suisse's Tony Shiret said it was 'a very reasonable price in difficult markets', and Panmure Gordon's Philip Dorgan called it 'an excellent deal'.
Dorgan noted the price is equivalent to 11 times EBITDA (earnings before interest, tax, depreciation and amortisation). He noted that Castorama Italy represents just 3 percent of Kingfisher's total sales but is being sold for 16 percent of the group's market capitalisation.
'It is early days, but we believe the new management team has got off to a good start,' he added.
The sale is conditional upon European Community Merger Regulation clearance.
At 10:06 a.m. shares in Kingfisher were up 5.7 pence at 124.1 pence, valuing the business at 3.0 billion pounds. This time last year the shares were changing hands for about 217 pence. firstname.lastname@example.org jdd/cmr COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.