Opinion: It used to be called Arnott & Co. Then the publicly quoted department stores sector boasted companies such as Cannock, the Limerick group chaired by the verbose group, Switzers and Brown Thomas.

And when Arnotts (the name was changed because everyone called it Arnotts) goes private, that sector will sadly not be represented on the Irish Stock Exchange.

But the outcome has been inevitable. With its rich assets and conservative balance sheets, Arnotts has been pursued on many occasions. Without the aggressive approach from Carrgran, a company backed by Lehman Brothers Europe, Peter O'Grady Walshe and Mark Delaney, its status as a publicly quoted firm would have been retained for a while longer; until the next time.

That approach forced the Nesbitt and O'Connor families to make their bid of 14 (plus 26.25 cent dividend) per share, valuing Arnotts at 257.3 million. When the offer document was released last week, it had already received irrevocable acceptances from shareholders representing 51.6 per cent and other acceptances have been rolling in.

This offer is unusual for two reasons. First, it is not an MBO. Executive directors Mr James Duignan (the current managing director who is due to retire), Ms Vivian Dudgeon and Mr Bill Kelly are accepting cash for their joint 3.5 per cent holding. That is a pity as there would be more cohesiveness with them directly on board, particularly as Mr Duignan and Mr Kelly were linked to an unsuccessful MBO. Those who remain with Arnotts are expected to be offered share options.

Second, there are no venture capitalists involved. The entire deal is being funded by Nesbitt Acquisitions, the vehicle used by the Nesbitt and O'Connor families. It is quite an achievement by senior counsel Mr Richard Nesbitt who chairs the acquisition firm, to assemble all the family members on board without any dissention; they will be forgoing those regular dividend payments for a long time to come.

The funding obligations will test the metal of Nesbitt Acquisitions. The package is in two parts: 215 million in two tranches "at specified margins over euribor plus standard regulatory costs" from Anglo Irish Bank Corporation, repayable in 10 years, and 30 million from Boundary Capital, a consortium of individual investors (Mr Niall McFadden and Mr Anthony Mulderry who were involved in the takeover vehicle used to take IT company, Riverdeep, private are listed as directors), repayable in 10 years and bearing an annual rate of interest of 12 per cent.

Considering the low interest regime with rates set to come down further, this latter loan is very expensive for the acquisition company. In contrast, it is a marvellous deal for Boundary's investors. They will be getting a better return than the best SSIAs!

It will be secured by a debenture, albeit after Anglo. And Nesbitt Acquisitions has agreed to issue warrants on up to 285,459 C ordinary shares in Nesbitt Acquisitions to the investors on the 10th anniversary of the loan.

Obviously, it would have been much better to have had the whole lot from Anglo, but that bank is likely to have asked for part to be funded elsewhere. Nevertheless, this type of junior financing is likely to be cheaper than going the mezzanine route.

The offer document does not specify the margin Anglo will be charging. However, if it is constructed like a property deal, the rate of interest could be 5-6 per cent. So on this basis, how much will Nesbitt Acquisitions have to pay per annum, and is Arnotts' cash flow capable of funding it? Annual capital repayments will amount to €21.5 million and the initial annual interest would be around 15 million, making a total of about €36 million.

In the year to January 31st, 2003, Arnotts generated a cash flow of €30.4 million from its operating activities. But out of that it had to pay tax of 4.3 million and €6.3 million on capital expenditure. The non-payment of dividends would save only 6 million per annum. While the very heavy capital expenditure programme involving over 100 million since 1994 could well be over, there will still be a continuing need for capital expenditure.

Clearly without asset sales - it has said there are no planned disposals - it would not be able to make all of these payments out of cash flow. It has a 50 per cent stake in Brink's-Allied which is engaged in the management of cash in transit, money processing and related activities. This does not fit in with the rest of its activities and could be disposed of.

The first offer period closes on June 19th. At this stage, it would be difficult for a counter bid to be made but it is open to anyone to do so. In any event, it won't be long before Arnotts joins the private brigade. That, regrettably, reflects reality. There will, of course, be more.