colorado 'could become takeover target'

Colorado 'could become takeover target'
January 27, 2006 -

Colorado Group Ltd could become a takeover target if the footwear and clothing retailer's share price continues to lose ground, analysts say.

Colorado shares tumbled 14 per cent on Friday, after the company shocked the market earlier this week with an earnings downgrade and the resignation of its chief executive.

Goldman Sachs JBWere downgraded Colorado stock to "underperform" from "marketperform".

But the investment bank retained its "hold" recommendation for Colorado shares, citing possible corporate activity.

"Colorado has a good group of store brands, strong store network, supply chain upgrade/cost saving potential and strong balance sheet," Goldman Sachs JBWere analyst George Batsakis said in a research report.

"This may result in corporate activity if the share price falls significantly below the current level."

At 1305 AEDT the stock had fallen 53 cents to $3.29.

However, other analysts said Colorado was an unlikely takeover target in the short-term.

"I just don't see anyone standing out as a possible buyer unless it's something like a private equity group," FW Holst analyst David Spry said.

"I just don't see it as being really attractive to another player."

Colorado owns the Colorado and JAG clothing chains, as well as the Williams, Diana Ferrari and Mathers shoe stores.

Analysts at Credit Suisse said that with the resignation of chief executive Rowan Webb, management uncertainty was a critical issue for Colorado.

"Colorado has been under some pressure from the market to beef up its management team in recent years," Credit Suisse analysts Andrew McLennan and Michael Jenneke said in a research report.

"However, the resignation of Mr Webb may raise this as a critical issue for the company again."

The investment bank changed its rating on Colorado shares from "outperform" to "neutral".

On Wednesday, Colorado downgraded its forecast for annual earnings before interest and tax (EBIT) to around $48 million for the year to January 28, 2006, down from its previous guidance of $57 million.

The figure compares to $60 million EBIT in the previous year.

Colorado, which had already warned of earnings pressure last November, blamed the downgrade on disappointing sales over the Christmas period.

Mr Webb also announced he would step aside when his contract wound up in March to allow a new injection of ideas into the business.