Briscoe's Duke stays schtum on Pumpkin Patch speculation

Rod Duke, majority shareholder and managing director of Briscoe Group, has refused comment on market speculation that he may take control of struggling childswear retailer Pumpkin Patch.

Pumpkin Patch hired Goldman Sachs late last year to advise on its capital and funding requirements and said a share issue was an option after warning it could breach banking covenants if Christmas trading fell below expectation. Closing unprofitable outlets is also under consideration in the turnaround plan. Duke owns about 10 percent of the clothing chain, is a non-independent director, and claims to be down around $20 million on his original investment so far.

Pumpkin Patch chairman Peter Schuyt said there had been no discussion with Duke at board level or personally over him lifting his stake in the company, and continuous disclosure rules mean the company would be required to inform the market if there had.

Market speculation centres on Duke under-writing a non-renounceable rights issue that would mean he could potentially take up shares that are not taken up by others. Under market regulations he would be required to make a takeover bid or gain shareholder approval if his stake lifted over 20 percent and would require 50.1 percent to gain full control.

Duke, who owns around 80 percent of Briscoe Group, said "if I start commenting on this speculation I'll be expected to keep doing so in future".

Briscoe Group had cash of $60.2 million at the end of July and Duke said it could potentially borrow a further $200 to $300 million. He said the group had been eying various acquisitions for the past two to three years but hadn't yet found anything that either met his criteria or was up for sale.

That criteria includes something that is earnings accretive, fits with the existing portfolio which includes Briscoe, Rebel Sports, and Living & Giving, and plays to the group's core competencies.

"I'm looking for something grunty, not a little business that would grow into another little business. I want something fairly chunky. I don't want to be in books, or pre-recorded music or in the food business. It should be obvious what segments I want to be in."

Paul Harrison, managing director of Salt Funds Management which holds just under 5 percent of Pumpkin Patch, said there had been market speculation for some time about Duke lifting his stake but he's not in favour of such a move.

"From our point of view, we can see more value if the management team turns the business around rather than seeing someone else coming in and taking it over."

Harrison said Duke was already contributing at board level and he didn't think much value would be added by also having him involved on the operational side. He's also not in favour of a share issue and would rather see management do more with its existing capital.

The next big capital requirement will be winter stock and Harrison said discussions he's had with management indicate existing inventory levels had been trimmed and providing the chain has had good Christmas trading, there shouldn't be an urgent need for additional capital.

When asked why he'd bought into Pumpkin Patch, Duke said it was a decision he'd made some years ago because it looked good value and was a good concept and category.

"I had a six-year-old boy at the time who liked wearing their clothes, which just goes to show you should never get into something because of children or animals," he said. "It's a very sad story."

Pumpkin Patch is looking cheap with its share price having dropped 67 percent in the past year. Its share price is only marginally up in trading today at 24 cents per share, well under the $1.50 or so per share Duke said he paid in one of the two tranches he bought his stake in.

Briscoe Group is due to release its crucial final quarter results in two weeks and Duke said Christmas trading had been okay but not spectacular. He said it was on track to exceed last year's tax-paid profit of $33.58 million.

(BusinessDesk)