10th Apr 2015 09:05
LONDON (Alliance News) - Majestic Wine PLC said Friday it will acquire online wine retailer Naked Wines International Ltd for up to GBP70 million in cash and shares, with founder and chief executive officer of Naked Wines Rowan Gormley to head up the enlarged group.
Majestic will pay GBP50 million in cash, funded by new debt facilities, and up to GBP20 million of contingent consideration in shares.
In order to reduce its leverage and ensure it has sufficient working capital resources to invest in the business, Majestic said it has decided to withhold its final dividend for the its current financial year 2015, and its interim dividend for the financial year 2016. It said it expects to progressively re-instate dividends by the financial year 2018.
The acquisition is expected to be enhancing to earnings in the financial year 2017, Majestic said.
Majestic said it expects to post an adjusted pretax profit of GBP21 million for the year to end-March. January and February were in line with its expectations, it said, but March was weaker and compounded by foreign exchange movements. It had already cut its estimate earlier in January by around 4% to GBP22.2 million.
Gormley will join Majestic and take up the role of chief executive officer with immediate effect, succeeding Majestic's acting interim chief executive officer Nigel Alldritt. Alldritt has been standing in for former chief executive Steve Lewis after he stepped down in February. Alldritt will now resume his role as chief financial officer of the enlarged business.
Majestic said that it and Naked Wines will continue to operate as independent brands, with their own existing dedicated local management teams.
Naked Wines posted an earnings before interest, tax, depreciation and amortisation loss of GBP3.3 million on revenue of GBP74 million in 2014. The business is expected to break even in its current year to end-March 2016, with strong growth expected to continue thereafter, Majestic said.
"This acquisition will significantly accelerate the planned development of Majestic's online capabilities whilst providing Naked Wines with a nationwide store network to allow a Click & Collect delivery option for its customers. In addition, this acquisition opens up attractive international markets, increasing our potential customer reach eightfold," said Majestic Chairman Phil Wrigley in a statement.
"This is great news for the customers, staff and suppliers of both businesses and will ultimately create significant shareholder value," Gormley said in a statement.
In January, Majestic saw it shares drop after it reported muted sales growth for the Christmas period and said its margins were coming under pressure from a higher-than-expected level of promotional pricing activity. It said at the time that it expected competitive pricing to continue throughout much of 2015. Brokers took a negative view on the trading update, with forecasts cut and ratings put under review.
"The acquisition of Naked Wines...represents the sort of radical thinking we were hoping would come out of the strategic review and gives Majestic growth opportunities beyond the UK," says Investec analyst Kate Calvert. "Both businesses have much to gain from each other."
Calvert says, with the acquisition, Majestic acquires a complementary business at an attractive price. The analyst says Naked Wines is an international business, with just 60% of its business in the UK, having generated GBP80 million in total sales on the year ended on March 2015.
Calvert says she expects new CEO Rowan Gormley to look to unlock Majestic's online potential, improve its customer relationship management, leverage its store network distribution and moderate store roll out plans.
Majestic Wine shares were down 4.4% at 303.75 pence Friday morning, having fallen to 280.00p at the open. Naked Wines is an unlisted company.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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