iving and Rebel Sport brands, generating annual sales of around $A446 million. Kathmandu, which started in Christchurch in 1987, was listed on both the New Zealand and Australian stock exchanges in November 2009 by its private equity owners, who had acquired the adventurewear retailer from its founder, Jan Cameron. Kathmandu currently has close to 160 stores in Australia, NZ and the UK, generating annual sales of around $A355 million. Kathmandu has aggressively expanded its store network since it was floated as a public company and has driven sales growth through a deep discounting marketing strategy with weekly price reductions of up to 70 per cent. The discount strategy appeared to have run out of steam in the first half of the 2015 financial year, with Kathmandu posting a $A1.58 million loss and noting that promotional campaigns had not generated the expected foot traffic into stores. The retailer acknowledged that it was reviewing its promotional plans as a result of the loss and examined other operational areas as sales continued to be “soft” leading into Easter that, along with July, are Kathmandu’s biggest sales periods and crucial to earnings. The deep discounting strategy and weekly sales have trashed price integrity for Kathmandu and the retailer’s traditional adventure customer base has also been eroded by concerns about product quality. Kathmandu’s share price fell sharply after a February update that warned first half results were below expectations due to inventory clearance activity and unfavourable weather. Higher operating costs associated with store expansion and the higher cost of stock due to the prevailing lower rates for the Australian dollar has also clipped margins and impacted on earnings. Simonet started as CEO at Kathmandu this week, replacing Peter Halkett, who resigned in August last year for health reasons. Simonet, who was recruited from the British retail chain, Radley, was no doubt keen to assess the business and promotional strategies of Kathmandu and to have stores capitalising on the cold weather in key markets to lift the full financial year results with a strong July performance. Instead, Simonet had scarcely located his desk before Briscoe Group posted advice that it intended to launch a takeover bid after amassing a 19.9 per cent stake in Kathmandu through the acquisition of shareholdings from institutional investors at $A1.60 a share. Briscoe Group wants to acquire all of the issued shares in the adventurewear retailer with a paper and cash bid that would offer five Briscoe shares for every nine Kathmandu shares and $A17.5 cents per share. Directors of Kathmandu have advised shareholders not to accept the Briscoe Group offer until it has been evaluated by management and its advisors, Goldman Sachs. Goldman Sachs Asset Management is one of Kathmandu Holdings largest shareholders. Kathmandu shares jumped in price after several months in a trough, but remained below the notional value of the Briscoe Group offer. Briscoe Group shares also moved up marginally after the takeover announcement, but at around $2.85 are down 10 cents a share on their price three months ago. Show Kathmandu the money Financial analysts suggest Briscoe Group is likely to have to increase the cash component of its bid if it is to win over Kathmandu shareholders. What is an essentially paper bid for Kathmandu is likely to require a comprehensive outline of the benefits of a merged entity and details of a forward strategy for Kathmandu if shareholders are to be persuaded to take up the offer. A merger of the Briscoe Group and Kathmandu would create a retail business with annual sales of around $A900 million and 225 stores. Briscoe Group would apply for a listing on the Australian Stock Exchange if the bid succeeds, but one of the hurdles to acceptance is that the suitor is controlled by Rod Duke, who holds 78 per cent of the shares in Briscoe and, on the proposed takeover deal, would retain a majority 55 per cent stake in the merged business. Duke said this week he had been looking for a third arm for Briscoe Group for some time and the takeover would provide Kathmandu shareholders with a premium for their shares while bringing “two iconic brands” together. Duke said he had some understanding of Kathmandu’s business because of a 20-year association with the founder, Jan Cameron, both of whom have shareholdings in Pumpkin Patch. Cameron, whose investment in discount retailing came to grief in 2014, supports Duke’s takeover bid and has revealed that he had expressed an interest in buying Kathmandu from her 15 years ago. Cameron said Duke would be able to address the problems that have checked Kathmandu’s strong run of sales and earnings growth. She said he was an “exceptional retailer” who runs a lean business and would be able to tackle the increasing cost base of Kathmandu. Some financial analysts have described the Briscoe Group bid as opportunistic, with Kathmandu’s share price languishing after reporting its first retreat on profits and sluggish sales growth earlier this year. However, Kathmandu is now in play and it is quite possible that the Briscoe Group bid could generate interest from other suitors, making Simonet’s early days in his new job a challenge and a distraction from what he might have planned to do in improving the financial performance of the retailer.