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   Web Issue 3239 August 29 2008   
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Dobbies, Tesco and Hunter face-off in court
JULIA HORTONMay 13 2008
ACCUSATION: Sir Tom Hunter says Dobbies and Tesco are trying to force him to sell up
ACCUSATION: Sir Tom Hunter says Dobbies and Tesco are trying to force him to sell up

The shares battle involving Scotland's richest man, the UK's leading supermarket and a growing gardening firm moved into the courts yesterday with accusations of ulterior motives on both sides.

Sir Tom Hunter is seeking a court order to block plans by Midlothian-based Dobbies Garden Centres and majority owner Tesco to raise £150m from shareholders by doubling the number of shares in issue.

The billionaire businessman, who would have to pay almost £44m to keep his near-30% stake in Dobbies, claimed the move was aimed at forcing him and other minority shareholders to sell up to give Tesco an even greater share.

But Dobbies and Tesco maintained that the money was needed to fund proposed expansion and to repay debts, and counter-claimed that Hunter was more concerned about his rival business interests as owner of Dobbies main competitor, Wyevale Garden Centres, than those of fellow Dobbies shareholders.

Setting out Hunter's case alleging breach of duty at Edinburgh's Court of Session yesterday, Richard Keen QC suggested that there seemed to be some "confusion" in the minds of at least some of Dobbie's directors over whether they should be acting in Tesco's best interests or those of Dobbies and all of its shareholders.

Keen said: "The question that will arise is whether the directors (of Dobbies) were motivated merely by the desire to raise money for the company or were in fact influenced by the interests of the majority shareholder, whose interests included the potential dilution of the minority sharehold and effective exclusion of the minority shareholders by making their shareholdings so unattractive that they would sell."

Dobbies has stated that it needs around £50m to expand the business, and around £100m to pay off a loan from Tesco, which has offered to underwrite the open offer.

But Keen queried why Dobbies wanted to pay back the loan when it had been granted only six months previously under "favourable" conditions including a 10-year term.

He also questioned why the firm's directors decided they needed to raise £150m now when, aside from the £8m purchase of family-owned Sandyholm Garden Centre at Crossford in Lanarkshire, no other acquisitions had been identified.

However, Dobbies said it was also working on two separate acquisitions, worth £45m and £20m respectively, and claimed it would lose the lucrative underwriting offer from Tesco if the bid was blocked.

Dobbies representative, David Sellar told Judge Lord Glennie yesterday that the dispute related simply to issues of "commercial judgment" which were "not a matter for a court to determine".

He said: "There is absolutely no basis to support the inference of improper practices (by Dobbies directors). There is no breach of duty."

Instead he referred to Hunter as a "disappointed suitor", adding that the businessman was acting not in his role as a shareholder but more as a "competitor".

Tesco's representative, Gordon Reid, backed that up, suggesting an alternative explanation of Hunter's bid to win an interim order against the open offer.

Reid said: "The unworthy suspicious motive is that it is yet another commercial strategy to put pressure on Dobbies and/or Tesco to enable the petitioner (Hunter) to achieve a more attractive exit strategy."

The battle between the Ayrshire entrepreneur and the supermarket giant has intensified since Tesco became the majority shareholder with a 65% stake in the business.

Hunter, who believes the Tesco bid undervalued Dobbies, remains the second-largest stakeholder through his investment firm West Coast Capital, enabling him to prevent Tesco from delisting Dobbies and to block key resolutions at annual meetings and extraordinary general meetings.

That power would cost him an extra £44m if the open offer goes ahead.

Lord Glennie is due to rule on the case later this week.


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