Super Retail wants Rebel with a cause by Michael Evans

INSIDER

What do you get when you cross a car parts retailer-cum-camping and fishing store, facing all the uncertainties of shopfront retail, with a private equity firm keen to offload a sports retailer it can't flog to small investors

To start with, a sizeable deal in flaky markets.

But in this case, the resulting outfit resembles the emergence of a substantial outdoor retailing emporium under the helm of Peter Birtles at Super Retail.
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With all the fears around discretionary retail from a slowing economy and online challenges, there's several ways to look at Super Retail - owner of Supercheap Auto stores and BCF (Boating, Camping and Fishing) - buying sporting retailer Rebel for $610 million.

Is this a smart move spreading earnings diversity across the outdoors product range at a low point in the cycle? Or a grab for the next leg of growth amid fears of what lies ahead for brick-and-mortar retailers? And what about, as one analyst put it, the ''inevitable questions whether there has been under-investment in the operations under previous private equity ownership''?

From Birtles's perspective, the deal clearly suggests he doesn't think retail is going to hell in a handbasket, confidently tapping shareholders for $334 million in equity and throwing another $269 million in debt onto the balance sheet. He now emerges with a quarter of the retail sporting market.

That said, Rebel sales did fall from $630 million in 2009-10 (with one extra trading week) to $603 million in 2010-11. Savings of $10 million have been identified but nailing the detail of different store formats and product lines will be in the execution.

As for the vendor, Archer Capital, its dreams of an $800 million float disappeared last year. It forked out $350 million to acquire Rebel in 2007, wrapping it into its other sporting enterprises to reap synergies.

The exit price will perhaps be disappointing given its hopes last year, but compared with some of the private equity dogs from the 2006-07 buyout vintage, Archer has done very nicely.

SILVER LINING

So far the talk about Qantas grounding aircraft due to continuing industrial disputes has been to the cost of the airline. But don't ignore the other side of the equation.

Figures have been bandied about of a $12 million revenue impact of grounding five aircraft for a month, while the overall cost of the dispute has been put as high as $20 million.

But do you remember what your economics teacher told you happens when you cut supply? Something about an impact on the pricing side - the same number of bums scrambling for fewer seats.

Analysts aren't keen to say it, but acknowledge that Qantas taking planes out of service will ''support'' and ''put a floor'' under ticket pricing. Not to mention the cost of running the planes.

While the airline is quick to sheet the blame for the groundings to unions, it's also worth pointing out that analysts have been noting a weakening of aircraft traffic.

The Macquarie Equities analyst Russell Shaw, for one, has noted that ''weaker than expected'' recent traffic and business confidence indicators are ''suggesting a slowdown in premium traffic is likely''.

SUNLAND SWAP

Gold Coast property developer Sunland is increasing its share buyback and quitting the Dubai market to focus on local developments.

The group confirmed yesterday that due to the near completion of its Palazzo Versace Dubai and D1 Residential Tower, it would swap the ownership with the joint partner, Emirates Investment Holdings, for a 100 per cent stake in the Palazzo Versace Hotel Gold Coast.

The group has made no secret that times are tough in the United Arab Emirates, and not that easy on the Gold Coast. But it continues to buy land in Queensland.

There will be no cash consideration in the scheme, and Sunland will continue with the Nur, Waterfront 1 and Waterfront 2 projects. Instead, the group will channel funds towards increasing its share buyback scheme to just over a third of issued capital.

The second largest holder after the Abdein family - Orbis with 21 per cent - is a supporter of the developer.

The managing director of Orbis Investment Management Australia, Simon Marais, said he saw the buyback as ''incredibly positive'', adding that Sunland's directors got it ''more right than wrong, whereas a lot of the real estate investment trusts are the opposite''.

Asked whether it could mean privatisation, Marais added, ''Well, they are buying good shares''.

PROXY SEASON

With the annual meeting season approaching, the US proxy advice firm Institutional Shareholder Services has announced that Daniel Smith, an American native, will head its local operations, which it will shift from Melbourne to Sydney next year.

Smith spent the 2008 AGM season working out of ISS's Melbourne office. He said he has since helped cover Australian companies from ISS's offices in the US.

ISS has been hit by a series of high-profile departures - Martin Lawrence and offsider Simon Connel left in July, and Dean Paatsch, who founded Proxy Australia and then sold it to ISS in 2005, quit last year. Paatsch is now helping one of ISS's former clients, the Australian Council of Super Investors, prepare for AGM season.

Most institutional shareholder work is centred on the AGM season, and it's fair to say ISS has not had ideal preparations. Smith, however, insisted it would have no trouble meeting deadlines. ''We have a number of analysts around the world who have Australian expertise, who have come down and chipped in during proxy season,'' he said.

''This year is just like any other year … we have sufficient strength to provide high quality research that is on time for our clients.''

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