Shares of Australia's Dick Smith see a five-fold increase in stock market debut

By Rizza Sta. Ana

Dec 04, 2013 10:55 AM EST

The largest electronics chain in Australia in terms of store numbers, Dick Smith Holdings Ltd, saw its shares increased five times since former owner Woolworths Ltd received a buyout bid for the company. Dick Smith shares on the Australian Stock Exchange increased to as much as 5.5% prior to trading close at AUD2.20 per share. As per Bloomberg's calculations, the enterprise value of Dick Smith is at AUD534 million, which was significantly higher than AUD94 million Woolworths in July agreed to exit from the electronics chain.

According to data compiled by Bloomberg. the initial public offerings of companies that were bought out in Australia could raise up to AUD2.5 billion in the next six months. This, the said data indicated, was more than the aggregate amount of total sales in the last two years. Anchorage Capital Partners, Dick Smith's buyer, will keep a 20% stake in the latter until the electronics chain issues its annual results for 2014. Management will reportedly keep another 11.5% holding in Dick Smith under the same terms.

BBY Ltd analyst Anthony Vogel said prior to trading day today, "As equity markets are going up it makes it attractive for private equity in this instance to sell. With regard to profitability, clearly there's been a big turnaround."

Dick Smith was founded in 1968 and was named after its founder. Woolworths subsequently acquired the electronics chain in 1982 and has around 359 stores in New Zealand and Australia and a staff of 3,700, according to its prospectus filing. The same document also said it projected that it will incur an increase in its pro forma net profit from AUD6.7 million last year to AUD40 million in the year ending June 2014.

Woolworths accepted an agreement to divest Dick Smith for AUD20 million after restructuring the latter in 2011 for AUD20 million and writing its asset value down to nil. Woolworths also agreed a AUD74 million payout in July this year for Anchorage to be free from compensating the former for any potential gain from selling the business.

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