The men from Musgrave were understandably coy this week when they were asked if they're going to buy out Budgens, once its lock-out agreement with the company expires in a year's time. But there are few in the trade who have any doubt that, when permitted, Musgrave will move quickly to buy out the remaining 56.5 per cent of the British grocery group.
Musgrave is obviously confident that it will be able to mix it in the UK with Wal-Mart, Tesco, Safeway and Sainsbury - not to mention the expanding Dunnes Stores. Budgens has been able to operate quite successfully in the cut-throat British grocery trade, with profits rising, despite it being a minor player that has spurned the move to out-of-town superstores.
Most of Budgens' stores are similar to Supervalu stores in Ireland, which average 8,000 to 10,000 sq ft, while Budgens' convenience stores are also broadly similar in size to Musgrave's Centra franchises.
Budgens has made a virtue of its High Street locations and does not seem to have suffered from the increasing focus of the giant multiples on superstores.
Independent retailers in the UK have only 9 per cent of the market, compared with the 25 per cent in the Republic controlled by Musgrave. If Musgrave's formula of franchises can be replicated in the UK - Budgens owns its 208 stores - there is obvious scope for big gains in market share. Budgens has only flirted so far with the concept of franchises, but is aiming to build a 50-strong chain of franchises within two years, if a current pilot succeeds.
Franchises are attractive as the franchisee bears the capital cost of setting up a store. That would be good news for Musgrave, which will face a hefty bill in a year's time if it bids to buy out the remaining shareholders.
Musgrave has already paid a reported 89p sterling (€1.45) per share for the shares it bought from German group ReWE. If it had to pay the same for the 120 million shares it doesn't control, it would cost £106 million sterling or almost £137 million - serious money for a private company, no matter what its size or strength of cash-flow.
That, of course, brings us back once again to the idea of Musgrave going public. This reporter can remember vividly a Checkout conference a few years ago where Hugh Mackeown ceremoniously ripped up a Warburg report on the Irish retail trade that had the nerve to suggest that the extended Musgrave clan might take the company public.
Since then, the Musgrave chairman, chief executive Seamus Scally, and finance director Michael Walsh have all been at pains to dismiss the idea of Musgrave going plc. But bidding for Budgens will cost a lot of money and could lead Musgrave to rethink its antipathy to the notion.
Buying out ReWe's equity and loan notes has already cost £115.5 million and produced gearing of 105 per cent for Musgrave. Another £130 million-plus next year for the rest of Budgens might stretch the balance sheet to the extent that raising equity finance might become an option.
