Venture giants join Matalan predators

MATALAN, the discount fashion chain that has attracted interest from supermarkets giants Tesco and Asda Wal-Mart, is being sized up by three venture capital groups.

They include Permira, now trying to buy department store group Debenhams, and American buyout specialist KKR. The third potential buyer is believed to be Texas Pacific, another US private equity group.

According to industry sources, the would-be bidders have been eyeing the retailer for some months and are keenly awaiting Matalan's interim results, out this week.

Matalan has had a turbulent time, losing two high profile and respected chief executives in the past two years after spats with founder and chairman John Hargreaves, who owns a 52% stake in the company.

The shares have suffered, plunging from a peak of 800p three years ago to 214p on Friday, valuing the chain at £900m.

In June, Hargreaves shocked investors when he revealed that like-for-like sales in the latest quarter had dropped by 7.5%. Brokers are forecasting half-year pre-tax profits of £44m, down from £53m last time.

Competition in the discount market is tough and Matalan has been badly hit by the rapid rise in popularity of Asda Wal-Mart's George range.

Despite pushing its clothing with the help of top model Jodie Kidd, it is reckoned by analysts not to have gone far enough to strengthen its product range, pricing and backroom systems.

The company is also dogged by talk of a rift between members of the Hargreaves family. Though John still relishes his hands-on role at the company he set up in 1985, his two sons, Jamey and Jason, who each have a 9% stake, are said to be keen to sell.

Asda Wal-Mart and Tesco have already been linked as possible bidders for Matalan with both keen to strengthen their own positions in the clothing market.

The retail sector is back in the spotlight after last month's Government ruling on the Safeway bid battle. Asda, Sainsbury and Tesco were blocked from bidding and advisers are now scrutinising further potential targets for growth. Matalan is one of the main names in the frame.