November 9, 2012

Advent pokers for Douglas Holding

Ranjan Sen, MD Advent International (photo: Advent International)
Ranjan Sen: "Cosmetic surgery is not enough"
Smart, eloquent and persuasive, Ranjan Sen is all that one might expect of an executive at a US private equity investor.

Talking at Advent International's stylish Frankfurt office overlooking the River Main, the German-Indian Managing Director was surprisingly forthright.

After all, his employers belong to an industry which is deliberately "private" and Advent is in the middle of a controversial bid for German retailer Douglas Holding.

"We want to hold talks with the management about developing new formats," he says regarding the "Douglas" perfumeries. "Douglas should also use targeted assortments to win the lady customer who doesn't normally shop in a classic perfumery."

O.K., sounds plausible, but what else could the Americans be after at the German "lifestyle group"?

"We want to hold talks with the management about developing new formats," he says regarding the "Douglas" perfumeries. "Douglas should also use targeted assortments to win the lady customer who doesn't normally shop in a classic perfumery."

Discount is tabu

Predictably, Sen is not tempted towards discounting. "From today's point of view a cheap format would not make sense for Douglas." This will certainly gel with the current management who tested and rejected the "Hela" discount fascia in 2008.

Polite and mild-mannered Ranjan Sen is disinclined to throw verbal weight around. Instead he uses words of consensus when talking about future cooperation with the Kreke family, the reigning dynasts at Douglas Holding.

Advent and the Krekes will have three seats each within the new supervisory board of Beauty Holding Three AG, although the former will hold an 80-per-cent stake in the new company.

"Advent will act as an advisor and won't assume any management functions...We will work confidentially with our partners, and we won't act on the principle he who pays gives the tone."

This is gentlemanly worded, but Advent would not have been successful in the past had it not been capable of optimising returns on what are, after all, ruthless international capital markets. And there is a lot to be done at Douglas.

The troubles of Thalia

The restructuring of troubled bookstore chain Thalia alone created losses of €75m during the first nine months of the 2012/13 business year. This will result in the closure of up to 15 outlets. But: "We currently have no plans for any further closures."

Sen also claims that Advent wants to keep the group's niche formats, i.e., the "AppelrathCüpper" fashion stores and "Hussel" sweets chain.

Not surprisingly, but perhaps a little ominously, the Advent MD admits that further restructuring at Thalia and the increased internationalisation of the company's "Christ" jewellery stores and "Douglas" perfumeries will have to be financed out of future cash-flow.

Advent will, however, make "further capital" available, where necessary. The Americans may well have to.

INTERVIEW


Mr. Sen, others buy perfume or jewellery for Christmas at Douglas, whereas you are buying the whole group. What would be your biggest Christmas present?

My biggest present is when my family is happy. Of course I would be pleased if the (proposed) transaction works out, but I am quite relaxed about it. We've made our offer. We can't and we won't increase it.

The deal will partly depend on how the Eklöh founder family reacts. Have you underestimated their capacity to disturb things?
I'm convinced that Douglas would be better equipped to meet future challenges with a strong and experienced investor.

It is also helpful not to be driven by the quarterly-thinking of the stock market. I hope that the Eklöh family sees that too and makes a correspondingly rational decision. The (bid) premium is also attractive.

But it only represents an increase of 9 per cent on the average share price over the last three months.

That might be, but what would happen if the deal fails? The share price would then presumably take a considerable fall.

Wasn't it a bit risky to announce ambitious growth plans in advance of the deal?

Advent has been active in Germany for 20 years. Why should we suddenly now start telling fairy tales? Douglas is a good company which hasn't done everything right. But who always does everything right? Certainly not me.

Your competitors shied away from the risk, especially as regards the Thalia bookstore division.

We don't act on the basis of what our competitors think. We consider that we have a viable restructuring plan. Bookstore retailing has its raison d'être.

We can compete with Amazon thanks to the German fixed book price agreement. Things would be different if there was no resale price maintenance and if we didn't have qualified employees.

But it will be hardly enough to reduce store sizes and to experiment with stationery and toys. Presumably more than 15 stores will have to go?

It is sensible and necessary to close loss-making stores. However, I can't judge what the world will look like in twelve months' time and to what extent we shall have to readjust our plans.

Presumably there will be set-backs, for example, when we introduce new assortments, but we intend to support this new direction. At the end of the day, value-added can't be achieved simply by cosmetic surgery, there has to be solid content.

 
Related article in German: Lebensmittel Zeitung, no. 45, 09.11.2012, by Martin Mehringer & Annette C. Müller


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