Consumer Industries Editor

CAPE TOWN Furniture powerhouse Ellerine Holdings confirmed yesterday it was holding talks with rival Relyant Retail that could see Ellerines buying out the group that the market currently values at about R1,2bn.

This continues the trend of the past few years of consolidation among domestic furniture retailers. Apart from Ellerines' recent acquisition of high-end retailer Wetherlys , industry leader JD Group absorbed Profurn two years ago.

But there are some doubts in the market as to whether or not Ellerines'

acquisition of Relyant can gain the competition authorities' approval. Four years ago, a merger between JD Group and Ellerines was rejected by the Competition Tribunal. Asked about this hurdle, Relyant CEO Alan Schlesinger

said: "We will have to go through that process."

Both Ellerines and Relyant were conducting due diligence examinations of each other's businesses, they said yesterday.

Ellerines said if it did decide to go ahead with an offer it would take the form of a swap of Relyant shares for Ellerines' shares, with no cash alternative at a ratio of 10 new Ellerines shares for every 225 Relyant shares held. Relyant's current market capitalisation is about R1,2bn. Based on the two companies' share prices at the end of last week, Relyant shareholders would swap shares worth R292,50 for Ellerines' shares worth R325.

Relyant's brands include DialA-Bed, Furniture City, Glicks, Lubners, Geen & Richards, Mattress Factory and Savells. It made significant losses in the year to June 2002, but was recapitalised in July 2002 with the injection of R792m, which brought German investors Poco Holdings on board. The group's biggest shareholders at present are FirstRand, with 24% and Poco with 41%.

Schlesinger said he could not comment on whether or not FirstRand might have approached Ellerines to make an offer because it would be looking to exit Relyant. But he could confirm that Poco Holdings was not planning to exit, either. He said the deal was potentially good for both Ellerines and Relyant.

An analyst, who asked not to be named, agreed. He said although Relyant was turning around strongly from its past losses, its longer-term growth was constrained, and it needed to make an acquisition or be acquired. Relyant and Ellerines had similar target markets and Relyant offered Ellerines operational and synergistic benefits.

Relyant's shares gained 5c to 130c, after the cautionary notice was published, while Ellerines dropped 150c to R31.

May 18 2004 07:06:00:000AM Charlotte Mathews Business Day 1st Edition