GUS surprises City with pounds 500m American bid

GREAT Universal Stores made a surprise move yesterday when it agreed to pay pounds 500m for an American database and credit referencing company while it is still embroiled in the pounds 1.6bn hostile bid for Argos.

GUS is buying Metromail Corporation, of Lombard, Illinois, in a deal which analysts said made the company an even more powerful player in the fast-growing US information business.

The company denied the deal might distract management from the Argos bid. Lord Wolfson, chairman of GUS, said: "We are a diversified group and the management team that has been working on this deal is not the same as the ones that has been processing Argos. There will be no distraction."

Analysts expressed surprise at the timing of the deal but said GUS could cope. "I don't imagine they would have done this if would detract form the Argos bid," said Alexia Walker at Paribas. Mark Josefson at Panmure Gordon added a note of caution: "It probably slightly reduces their ability to increase their offer for Argos, but with its strong balance sheet it could still pull it off." GUS shares fell 11.5p to 773.5p on the news.

Lord Wolfson said there would be significant synergies in terms of product development and costs with its Direct Marketing Technology business, another US data company which GUS acquired for pounds 300m last April. Metromail specialises in sectors such as telecommunications while D-Tech concentrates on financial services and catalogue shopping data.

D-Tech approached Metromail with a view to a merger last year. After GUS acquired D-Tech, it too started to look at the possibilities of putting together the two businesses whose head offices are just 10 miles apart.

Analysts appeared supportive of the deal. "Before GUS bid for Argos, this was the deal everyone expected them to do. GUS' balance sheet is strong and it can easily afford to do both this and Argos and still have relatively low gearing," said Ashley Thomas, at SG Securities.

GUS had net cash of pounds 600m at its last year end and will have net debt of pounds 1.9bn if its succeeds in its bid for Argos as well as the Metromail acquisition.

GUS is already a significant operator in the US credit and information market. In November 1996, just three months after Lord Wolfson became chairman, GUS paid pounds 1bn for Experian, one of America's largest database companies. Since then Lord Wolfson has pulled off a string of deals in both its information and its retailing businesses. "He seems to be transforming the company," said Mr Thomas.

Under the terms of the deal GUS is paying $31.50 (pounds 19.10) per share which include taking on the company's debts. The deal has the backing of RR Donnelly, a printing company and the Metromail management which between them own 40 per cent of the shares.

GUS has paid a high price for a business which recorded a loss of $1.4m on sales of $328m last year. However, this was after exceptional items of $37m. The company made pre-tax profits of $26.5m in the previous year.

Lord Wolfson admitted that GUS had paid a full price but added: "The acquisition will unite two complementary businesses bringing economies of scale and a wider range of services which will be to the benefit of the customers of both companies."

Bart Faber, chairman and chief executive officer of Metromail, said the information and database industry was consolidating and that this deal represented a way of taking advantage of growth opportunities.

Argos shares closed 5p lower at 607p.

LORD wolfson's acquisition spree

Aug 96 Lord Wolfson appointed GUS chairman

Nov 96 Spends pounds 1bn on Experian, US credit agency

Feb 97 Signs pounds 900m property joint venture with British Land

Apr 97 Buys Direct Marketing Technology of US for pounds 300m

Dec 97 Pays Burton pounds 20m for Innovations mail order

Feb 98 Buys SG2, French information group for pounds 70m

Feb 98 Launches pounds 1.6bn hostile bid for Argos

Mar 98 Spends pounds 500m on Metromail, US database company