Sir Tom Hunter has increased his stake in Dobbies Garden Centres, prompting Tesco to drop the acceptance level it requires for its offer for the company.
Entrepreneur Sir Tom Hunter yesterday declared he had pushed his stake in Dobbies Garden Centres beyond 25%, and supermarket giant Tesco promptly dropped the acceptance level it requires for its offer for the Midlothian-based company from 75% to 50%.
The events marked a significant escalation of the developing battle between Scotland's richest man and the top five global retailer.
Hunter increased the price he was willing to pay for Dobbies stock still further yesterday to 1845p a share and hiked his stake from 21.4% to 25.57%. This would have allowed him to block single-handedly Tesco's bid for Dobbies, which is recommended by the garden centre chain to shareholders, under the 75% acceptance condition announced by the supermarket giant when it unveiled its 1500p a share or £155.6m offer on June 8.
However, Tesco was defiant last night.
It announced it was posting its offer document to Dobbies' shareholders even though the level of its bid is now way adrift of the garden centre chain's current share price.
Seemingly throwing down the gauntlet to Hunter, Tesco declared: "The offer is subject to the terms and conditions set out in the offer document, including regulatory clearance and a 50% acceptance condition, rather than the 75% acceptance condition stated in the announcement by Tesco . . . on 8 June."
The supermarket giant's fight with Hunter is becoming increasingly intriguing.
Tesco was viewed by the City as being in an extremely strong position when it declared an effective 28.2% stake in Dobbies on June 8, within hours of emerging as a surprise suitor for the garden centre chain.
However, philanthropist Hunter has been leading consolidation in the garden centre sector, leading a consortium which last year bought English chain Wyevale Garden Centres for £310.9m. More recently, Hunter acquired Blooms of Bressingham.
It appears that Tesco may have underestimated both the scale of Hunter's response to its incursion on what he clearly considers his patch, and his ability to react.
One industry observer noted yesterday: "Tom Hunter could have written a personal cheque for this (Dobbies)."
Tesco's announcement last night about the posting of its offer document, and the lowering of the required acceptance level for its bid, signals that it is also dug in for what looks likely to become an increasingly bitter fight.
However, with Dobbies shares rocketing another 47.5p to a fresh record of 1837.5p by yesterday's close on the back of Hunter's latest stakebuilding, it is difficult to imagine Tesco's 1500p-a-share offer proving particularly attractive to shareholders of the Scottish-based garden centre chain.
Dobbies has been attracting the interest of hedge funds.
New York-based hedge fund manager Arnhold and S Bleichroeder on Tuesday declared an effective 1.58% stake in Dobbies, after dealing on Monday, seemingly seeing scope for a significantly higher bid for the garden centre chain than the one on the table.
It is difficult to imagine Tesco, given its global clout, retreating unsuccessfully from Dobbies. However, Hunter's stakebuilding has raised the garden centre chain's share price way above the level of Tesco's initial offer, and it remains to be seen whether and by how much the supermarket giant might be prepared to raise its bid.
Hunter looks to be in a strong position.
It is believed he began his stakebuilding in Dobbies at about 550p a share.
Hunter could outbid Tesco and win Dobbies or, if the supermarket group were to hike its offer, he could cash in his stake and almost certainly make a big gain given nearly half of this holding was bought at prices way below the 1500p currently on the table.
If Tesco walked away from Dobbies and sold its stake, Hunter could regain the whip hand without a full bid.
Last night's announcement by Tesco on acceptance levels would appear to highlight another intriguing possibility - that Hunter might even become a junior partner with the supermarket giant in Dobbies. The benefit to Hunter in such a situation is less clear, although he might be able to frustrate Tesco's plans to develop Dobbies and the supermarket giant might be uncomfortable with such an arrangement given the entrepreneur's other interests in the sector.
In any case, Tesco would still seem likely to have to raise its bid for such a scenario to arise given Hunter's demonstration that he is willing to pay far more than the offer price to build his stake and the consequent rise in Dobbies' share price.
Another possible scenario would be stalemate - if Tesco's bid did not win the day and both it and Hunter retained their sizeable holdings in Dobbies.
Tesco on June 8 provided for the delisting of Dobbies from the Alternative Investment Market once the 75% acceptance level were reached. Hunter, were he to stand his ground, could on his own prevent it from reaching this level.
The fight over Dobbies appears to be further good news for James Barnes, the garden centre chain's chief executive. Barnes's stake had already leapt in value with a surge in Dobbies shares way before Tesco arrived on the scene.
Barnes owns nearly 7% of Dobbies. This stake is valued at about £10m by the Tesco offer. If a full bid for the garden centre chain were to be made at the 1845p-a-share price of Hunter's latest purchases, the value of Barnes's stake would rise to nearly £13m.
A bid at such a level would value Dobbies as a whole at about £191m, including stock to be issued under share option and incentive schemes.
Dobbies employs more than 1500 people across the UK, with the bulk of its 21 stores in Scotland and northern England.
