Another bidder for Thorntons

Related tags Thorntons Private equity

The private equity arm of the bank Lehman Brothers has emerged as
the latest challenger to bid for Thorntons, the high street
chocolate retailer and manufacturer.

The potential sale of Thorntons has become a reality after a difficult period for the company, which seemed to have turned the corner after several turbulent years in the late 1990s when its product offering and retail format began to suffer at the hands of more sophisticated newcomers.

Speaking at the company's AGM in October, chairman John Thornton confirmed that "a number of additional preliminary approaches have been received from interested parties independent of the management team",​ although he stressed that there was still no guarantee of any firm offer being made.

The original bid for the company was thought to have come from Permira, the private equity group, which valued the group at some £120 million. But since then, numerous other potential suitors have come forward, including Lehman Brothers, according to press reports this week.

Thorntons, which was floated in 1988, also announced this week it had freed members of the management team to look for backing for a management buy-out.

Thorntons is yet to report on how it fared during the all important Christmas period, but it will be hoping for a recovery in sales after a difficult early part of the year affected by the hot summer weather.

The group reported pre-tax profits down nearly 10 per cent to £6.4 million in the 12 months to June, with the first half improvements reported in February more than offset by the decline in the second half. Even the company's move towards increased sales of soft drinks and ice cream - two products which sold well during the heatwave - was not sufficient to offset the poor sales of chocolate during the period.

The company, 20 per cent owned by the Thornton family which founded the company in 1911, is likely to hold out for a bid of about 200p, according to the Financial Times​. Initial offers for the chain were thought to be around 180p, itself a significant premium on the company's share price at the time.

While none of the bidders have been confirmed, the likelihood is that any eventual buyer will be an investmetn group or the incumbent management team - a retail bidder, or another confectionery manufacturer, are highly unlikley.

The Thorntons brand name is obviously an attraction, especially as it starts to roll out more of its products in the wider retail arena, but the company is unlikley to want to sell the name and the manufacturing operations without the store network - even though a relatively large number of its stores are in fact franchised.

Despite its difficulties, the fact remains that Thorntons does have a viable high street business, as long as it can continue to diversify into other areas (such as expanding its product offering, or rolling out more coffee shop concept outlets) to offset the problem of being dependent on a product highly susceptible to the weather.

The company's efforts to upgrade its store design, which was looking a little shabby compared to some of the newer arrivals, have paid off, with the pre-heatwave results showing a marked improvement, and it has certainly been moving in the right direction for some time.

Which is why the company will take its time over the bids, and indeed may opt for the MBO route rather than an outright sale - and why it can afford to wait for a bid around the 200p per share mark.

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