Paris: The French retail and luxury group PPR confirmed plans to spin off its Fnac unit and seek a separate listing for the music and books retailer in 2013 as part of long-running efforts to refocus its business on luxury and sports brands.
Having failed to find a buyer for Fnac, PPR is keen to offload the struggling retailer at a time when it is starting to reap benefits from a restructuring and efforts to revamp its operations.
While PPR is keen to present Fnac as a turnaround story to shareholders, some analysts said PPR was also looking to separate the retailer from its accounts at a time when consumption trends in France were worsening. “There is a risk that Fnac sales continue to fall in the months to come,” one Paris-based analyst said.
PPR, which began its exit from retail with the sale of department store Printemps in 2006, had been looking for a buyer for Fnac for more than three years.
Last year, PPR made further progress on its plan to specialise in luxury and sports brands by selling furniture retailer Conforama. In July, it raised nearly €1 billion ($1.29 billion) by selling its remaining stake in distribution unit CFAO. PPR owns Gucci and Yves Saint Laurent and sports brands Puma and Volcom.
Analysts estimate Fnac to be worth between €500 million and €800 million and predict spinning off the business will boost PPR’s valuation, which was pulled down by the flagging retail units.
Broker Bryan Garnier estimated in a note that without Fnac, PPR’s operating margin would reach 18.6 per cent against 13.5 per cent including the retailer. The broker said assessing the impact of Fnac’s sale on PPR’s valuation was difficult as it depended on how much debt would be split between PPR and Fnac, “even if we believe most of the debt will be kept by PPR given the poor cash flow generated by Fnac.”
Restructuring
PPR last year launched a restructuring of Fnac in which it shed more than 500 jobs, saved €80 million and widened its product offering to include more household electronics and toys.
“This demerger project is part of the dynamics of our ‘Fnac 2015’ transformation and expansion plan and will enable Fnac to implement its sustainable growth strategy autonomously,” Fnac chief executive Alexandre Bompard said in a statement.
In the six months to June 30, Fnac made an operating loss of €7.5 million on revenues of €1.77 billion, down 1 per cent, while PPR’s luxury operating profits rose 30.4 per cent to €727.1 million on sales up 18 per cent.
PPR said the spin-off would see the group distributing Fnac shares to PPR shareholders but did not give more details or a more precise timing than the year 2013.
PPR will be using the same format retailer Carrefour used to spin off and list Spanish discount chain Dia in Madrid last year and hotel group Accor used in 2010 to float Edenred, a provider of prepaid service vouchers.
If the spin-off goes through, it will mark a return to the stock market for Fnac, which was created in 1954 and obtained a Paris listing in 1980. PPR started investing in Fnac in 1994 and gained control in 1996.