Wal-Mart bid for MFI `unlikely'
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Your support makes all the difference.SHARES IN MFI, the struggling down-market furniture chain jumped 5.25p to 33p yesterday on media reports of a bid from Wal-Mart the US hypermarket chain, before easing back to close at 32p, as analysts dismissed the reports as inherently unlikely.
MFI's 120 stores average around 15,000-20,000 square feet, which is "way too small for Wal-Mart unless the US store is planning a radical change in its format in order to enter the UK," one leading retail analyst said.
Securing planning permission for a change of use from big-ticket furniture warehouses to the mix of food and general goods favoured by Wal-Mart would be even more of an obstacle. Planning permission for a change of use would have to be negotiated piecemeal with individual planning authorities and would be both difficult and time-consuming
It would also run contrary to current government thinking, which looks unfavourably on any further expansion of out-of-town supermarkets.
Analysts accept that MFI no longer offers an attractive range, and little improvement is expected without a change of management or a radical change in the format and thegoods on offer. Although the up-market Schreiber range is good enough to trade on its own, the cheaper ranges of furniture have been outclassed by competitors such as IKEA.
Howden Joinery, which operates as a builder's merchant, is profitable but small, while Hygena, the manufacturing arm of MFI, is currently paying rent well in excess of the value of its sites and could be easily and cheaply duplicated elsewhere.
Last October the management reported a 23 per cent drop in profits to pounds 57.1m in the year to the end of April. It promised the new range of Home Delivery centres would deliver 1,500 job cuts and cost savings of pounds 25m in a full year, but analysts expect profits in the current year to fall to as low as pounds 12m-pounds 20m with earnings at 1.2p to 2p a share, before staging a partial recovery to around pounds 30m-pounds 45m in 1999-2000.
The shares have fallen steadily from a peak of 209p in 1996 and 140p earlier this year. At the current price the company has a market capitalisation of pounds 190m, valuing the shares at less than eight times forward earnings. The company is highly geared and high-risk but some analysts think it could now be a speculative buy.
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