New acquisition to be run as autonomous business

Musgrave intends to run Budgens as an autonomous business but plans to expand the number of its stores that are franchised, in line with its strategy at SuperValu and Centra.

All but one of its stores in the Republic are operated as a franchise. In Northern Ireland, just eight of the more than 70 are owned and operated by Musgrave. Budgens has embraced this model in the past couple of years but only a small number of its 200 stores are currently franchised.

"We expect there will be growth in the number of franchised stores. There is room for fairly significant expansion there," according to managing director Mr Seamus Scally.

In the Republic, the group said there was little further scope to expand the SuperValu franchise but there was potential still to develop Centra. In Northern Ireland, it is looking to open another 15 to 20 stores over the coming year.

The Budgens purchase will be funded by finance raised from a consortium of banks. This will put a substantial debt burden on the group and will affect earnings over the next couple of years.

Mr Scally said the group would expect to bring in profits in excess of €37 million in 2002 and 2003, but that it would have to service large interest costs.

Musgrave will remain a private company. Mr Scally said this status had been good for the group over the years. Budgens will be de-listed from the London Stock Exchange provided the takeover offer is accepted.

"Being a private company has served us extremely well up to now. It has been an important part of our success," Mr Scally said. "It has allowed us to take long-term decisions that public companies couldn't contemplate because of the demand for a return from the markets."

Musgrave bought its 45 per cent stake in Budgens from German retailer ReWe in August 2000, paying £89.4 million sterling (€136 million), and has enjoyed a good relationship with its management team since then.

Budgens chief executive Mr Martin Hyson yesterday said the group considered it a good offer. He has told shareholders that the firm's expansion prospects would be greater as part of a larger company but refused to be drawn on any specific plans.

The deal values the business at £214 million sterling.