House of Fraser, the UK department store chain, confirmed on Monday that it was in talks to take over its smaller rival James Beattie, pushing shares in the Wolverhampton based group higher.
James Beattie, which has 12 department stores across central England, said the discussions with HoF were at “an advanced stage” but that there was no certainty an offer would be made.
In midday trade James Beattie’s shares were trading up nearly 25 per cent at 144½p, while HoF shares were flat at 105½p.
James Beattie, which has been plagued by the poor performance of its West Midlands stores, in April reported a 38 per cent fall in pre-tax profit for the year to January 31. Pre-tax profit fell from £5.2m ($9.5m) to £3.8m on sales of £170m.
Analysts said James Beattie had long been seen as a bid target and there was little surprise that the bidder was HoF, which recently purchased Jenners, the Edinburgh department store, but failed in a bid for three of the former Allders stores.
“The mooted price of 170p seems a little generous; it is probably explained by the freehold property having a much greater value than it is carried at in the books,” said Richard Ratner at Seymour Pierce.
A deal could allow HoF to close James Beattie’s Birmingham store, which competes directly with HoF’s own store. Although HoF could equally use the store, located diagonally opposite James Beattie’s, as a satellite for its business.
Last week HoF said it would close its 170-year old Dickins & Jones store on Regent Street. The group also reported a 3.2 per cent drop in like-for-like sales in the first 19 weeks of the year as margins were hit by price reductions and slower sales of homeware goods.