Anchorage cashes out of Dick Smith for $105 million

Anchorage Capital Partners has sold its stake in Dick Smith Holdings, offloading 47,302,273 shares for around $105 million. Dick Smith Holdings closed at $2.23 today, down 2.62 per cent on the day prior.

The news was revealed to Australian Securities Exchange (ASX) this afternoon in a simple message from company secretary David Cooke that read:

Dick Smith Holdings Limited has been advised that Anchorage Capital Partners has sold its 47,302,273 shares in the company.

Dick Smith is cognisant of its Continuous Disclosure requirements under ASX Listing Rule 3.1 and confirms it is in compliance with its obligations.

This sale may surprise some onlookers because as recently as 18 August 2014, Anchorage Capital Partners managing director Daniel Wong had stated that Anchorage had “no intentional of selling at the prevailing price”. Dick Smith’s share price that day was just under $2.00. At that time, Wong confirmed to Dick Smith MD and CEO Nick Abboud that Macquarie Capital had been appointed Anchorage’s financial advisor and broker.

Anchorage Capital Partners acquired the Dick Smith retail electronics business from Woolworths in September 2012 for an initial $20 million. At the same time, experienced retail pro and former longstanding Myer employee Nick Abboud was appointed the inaugural managing director and CEO. The final buy-out figure ended up being $94 million, paid out in July 2013. Over the course of its private equity ownership, Abboud spearheaded an aggressive store expansion project, a concession partnership with David Jones and the opening a new fashtronics retail venture called ‘Move’.

Dick Smith Holdings was officially listed on the ASX in December 2013, with Anchorage raising $344.5 million from the issuing of 156.6 million shares at $2.20 each. The share price has fluctuated from between $1.80 and $2.41 during the intervening 10 months, during which the retailer revealed a $42.1 million net profit after tax from $1.228 billion in sales. Abboud attributed this positive debut result to a “simple” strategy:

Drive sales growth by providing customers with a compelling offer and unparalleled convenience. We achieve this through providing our customers with an extensive range of products at competitive prices and leveraging our multiple omnichannel platforms across our 377 conveniently located and growing store network. The benefits of this strategy are being realised, with strong sales growth in FY2014, particularly in the last quarter, continuing into FY15.

Earlier this month, Michael Potts, finance director and CFO of Dick Smith, traveled to London and New York to woo potential investors at Goldman Sachs and Bank of America/Merrill Lynch Investment Conferences. Potts told these potential buyers that under Anchorage’s stewardship and Abboud’s executive leadership, Dick Smith had improved it terms with major suppliers, brought New Zealand buying over to Australia to reduce costs, cleared excess stock, closed surplus warehouses, greatly improved logistics in partnership with StarTrack, removed unnecessary middle management staff and opened 57 new outlets across its various brands. Potts told investors that Dick Smith was a “strong and sustainable [company] with no debt”.

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