Kingfisher urged to spin off Comet

SHAREHOLDERS are calling on Kingfisher to demerge its electrical retail arm, which includes the Comet chain. Institutions hope the radical measure will be undertaken by incoming chairman Francis Mackay.

He is also expected to assess whether long-serving chief executive Sir Geoff Mulcahy, 59, should stay until the end of his three-year contract, awarded earlier this year.

'The strategy needs to change,' said one big institution. 'It is hard to know if Mulcahy should stay and oversee it or go. Mackay will have to make that judgment.' Another large shareholder said: 'It is absolutely clear that this company cannot stay as it is and we are looking to Mackay to initiate change.'

Kingfisher has had a tumultuous year, during which it demerged Woolworths, sold Superdrug and saw its shares underperform the retail sector by more than 20%. The group now comprises two main divisions, DIY and electrical retail, represented in Britain by B&Q and Comet respectively.

There is also a large international business. In France Kingfisher has a 54.6% stake in the home improvements chain Castorama. It also owns loss-making German electrical business Pro-Markt and a string of store groups from Turkey to Canada.

Investors find the disparate nature of the company cumbersome and unnecessary. 'The German business needs to be addressed and Castorama needs to be tidied up,' said one shareholder.

Castorama is valued at £5.5bn so a buyout of the minority stake would cost £2.5bn. Nonetheless there is a feeling that the status quo is unsatisfactory. Shareholders also believe the DIY business would become an attractive takeover target if it were demerged.

Kingfisher said: 'We now have a major presence, via B&Q and Comet, in two key markets that are coming together quickly both here and overseas. It helps enormously that we can grow in both sectors because our B&Q and Comet stores capitalise on many of the same business skills and occupy the same out-of-town locations.'

Institutional frustration with the retailer was crystallised earlier this year over management's handling of the Woolworths and Superdrug deals. Plans to offload the businesses were announced in September 2000 but final decisions were not revealed until July this year, after months of indecision and management infighting.