Arnotts board to meet amid dispute between families

Analysis:The board of Arnotts convenes this morning in a Dublin hotel for a scheduled meeting. After tension between two shareholding families culminated in a bid for the retailer on Friday, it promises to be a testy encounter.

The Nesbitt and O'Connor families have worked together for more than than half a century at the helm of the iconic shop on Henry Street in Dublin, one of the last Irish-owned department stores. After decades of close co-operation, they are now mired in a bitter public dispute.

Today's meeting was to approve proposals to move into a final negotiation with equity partners for Arnotts' ambitious Northern Quarter project, in which it plans a €750 million redevelopment of its extensive properties around the store. That discussion may yet be had, but the approach for the company is likely to dominate the meeting.

The bid could mark the end of one of most of the most enduring relationships in Irish business. Those who own Arnotts today are directly descended from Alexander Nesbitt, who joined Arnotts in 1867 as an apprentice and rose to the top of the firm, and from PJ O'Connor, a builder who became involved in the business in the 1940s.

The confrontation is all the more surprising because both families renewed their association only four years ago when they took the company off the stock market. It may have seemed then that all was well, but tensions that have simmered in private for many months burst into the open on Friday when it emerged that the O'Connor family had made a bid to take full control of the business.

Led by Kevin O'Connor, grandson of PJ O'Connor and a partner in Arthur Cox solicitors, the family has offered €200 million for the group, subject to due diligence. The family assumes Arnotts' debts come to €310 million, valuing the business at some €510 million. This equates with with €50.57 for each Arnotts share.

On the opposite side stands Richard Nesbitt SC, great-grandson of Alexander, chairman of the company and its single biggest shareholder. Mr Nesbitt owns 5.04 per cent of the business personally and 60 per cent of a family investment vehicle called Art Ltd, which has a 60.45 per cent stake in Arnotts.

He says his personal stake combined with his interest in Art Ltd can block a sale to the O'Connors because Art Ltd votes as a single block in Arnotts in accordance with his majority vote. "As far as I'm concerned, this episode is over," he said yesterday. "I have no interest in selling, I never have done and that's it."

For their part, the O'Connors say they have no firm knowledge of the structure of Art Ltd. "The status, board make-up and shareholding breakdown in Art is not known to the bidders, but it doesn't in any way change the status of the offer."

Nevertheless, their stance in making the offer must assume that not all in the Nesbitt family are at one with Richard Nesbitt, but he is confident of their support. He said in his letter yesterday to former chairman Michael O'Connor that shareholders to whom he had spoken "understand my position and support it".

Mr Nesbitt dismissed the O'Connor offer as a "stunt", designed to strengthen the hand of the O'Connors as they seek an exit from the business. Already he has offered to buy out the O'Connors at €25 a share, roughly half the value of their approach on Friday. While he has also offered to have the company's value determined by an "independent expert", the O'Connors believe €25 a share is a drastic undervaluation.

Sources close to the family reject the contention that the bid is merely a lever to extract a higher price from Mr Nesbitt, stating that they have big expansion plans for the store and are committed to making significant investments in the business at large.

They are unhappy with the strategic direction that Mr Nesbitt has taken, accumulating significant properties for the Northern Quarter initiative in the area between Middle Abbey Street, Liffey Street and Henry Street.

They are also unhappy with the trading performance of the department store itself, which had a pretax loss of €1.73 million in the year to January 2006 on sales of €144.84 million.

While such losses reflect big investments in the business that year, Arnotts is understood to be forecasting revenues of €230 million this year and earning before interest, tax, depreciation and amortisation of roughly €20 million.

"As far as the company is concerned and the independent board is concerned, the trading position is very healthy and well up on last year," Mr Nesbitt said.

He said the O'Connor bid was dead, but they disagreed in the most strident of terms. With bid interest now out in the open and Arnotts trading on the up, there is always the possibility that other suitors may come calling.

Mr Nesbitt is not for turning but neither are the O'Connors. Whatever the outcome, this relationship is on the rocks.