Bloomberg News

La Polar Rebounds as Record Drop Spurs Takeover Speculation

June 10, 2011

(Adds closing prices, hiring of financial adviser in fifth paragraph, finance ministry comments in 11th paragraph.)

June 10 (Bloomberg) -- Empresas La Polar SA rose a record 19 percent on speculation an investor will seek to gain control of the Chilean department-store operator after the stock reached a record discount to emerging-market retail peers.

La Polar jumped to 1,603.7 pesos in the biggest gain since it began trading in September 2003. The stock tumbled 42 percent yesterday after the company said it will incur provisions of as much as 200 billion pesos ($427 million) for bad loans.

“The fall yesterday was too violent and the stock will go through a period of volatility,” said German Guerrero, director of Santiago-based brokerage MBI Corredores de Bolsa SA. “The market is taking into account that La Polar is still an ongoing business that will create value and there is speculation that somebody may now want to buy it.”

The stock fetches 12.2 times trailing profit, compared with a ratio of 21.3 for the MSCI Emerging Markets Retailing Index, according to data compiled by Bloomberg. The company engaged in irregular lending practices and fired its loans manager as part of a restructuring of the division, it wrote in a regulatory filing yesterday. The company has no clear controlling shareholder as all of its shares trade freely.

La Polar extended gains today after saying in a regulatory filing that it hired Larrain Vial SA to help “evaluate different options for maximizing company value.”

‘Become Attractive’

“La Polar has become attractive for an investor or group that doesn’t have a presence in Chile’s retail sector and it would be a very cheap buy,” Pablo Solis, who helps manage about $5 billion for BCI Asset Management in Santiago, said yesterday.

The company may have to set aside provisions of 150 billion pesos to 200 billion pesos, according to a statement on the securities regulator’s website.

La Polar named Eduardo Bizama as chief executive officer to replace interim CEO Martin Gonzalez, who returns to his prior position of commercial manager, the Santiago-based company said in yesterday’s statement.

Feller Rate, an affiliate of Standard & Poor’s, cut the company’s credit rating to BB+ from BBB+ with a negative outlook yesterday after downgrading from A- on May 20. Banco Santander SA cut its recommendation to “underperform” from “hold” and Deutsche Bank AG lowered the stock to “sell” from “hold.”

The government’s consumer watchdog last week filed a class- action lawsuit against La Polar for allegedly changing terms of consumer loans without seeking consent from customers.

‘Limited Effect’

La Polar’s credit irregularities will have a “limited” effect on the financial system and don’t pose a risk for market or banking solvency, according to a statement sent by e-mail from the finance ministry. Regulators were instructed to investigate the role played by company executives, directors, auditors and credit-rating agencies, the ministry said.

In a separate e-mailed statement late yesterday, La Polar said that the loan-loss provisions don’t affect its business model and the company remains committed to growing in Chile and Colombia. La Polar’s public relations department didn’t respond to e-mail and telephone requests for comment.

The retailer, which targets middle-income earners, adopted more conservative lending practices in the second half of last year to reduce non-performing loans. Based in Santiago, the company said May 27 that it may sell as much as $400 million of new shares for expansions and to “strengthen capital.”

‘Strategic Investor’

The share sale may provide an opportunity for a “strategic investor,” Eric Conrads, who helps manage $12 billion in emerging markets stocks at ING Investment Management in New York, said yesterday.

“You have a company that has quite important issues, doesn’t really have a captain on board to turn things around and is in need of money,” Conrads said. “Someone who would like to buy the company can come in at an interesting level and come out as a white knight saving the situation. I can see that scenario could pan out for someone.”

La Polar increased provisions by 29 billion pesos and wrote off a total of 43.2 billion pesos in loans, it said March 17 when it reported a 78 percent drop in fourth-quarter profit.

La Polar plans to spend $250 million from 2012 to 2015 to open 10 stores in Colombia and eight in Chile, Chairman Pablo Alcalde said May 3. That’s in addition to the three stores it will open this year in Colombia and three in Chile.

La Polar’s first-quarter profit rose to 6.21 billion pesos from 3.92 billion pesos a year earlier, it reported April 29. Net income fell 38 percent in 2010 from a year earlier.

--Editors: James Attwood, Brendan Walsh

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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