ESPORTA SUBJECT TO HOSTILE BID Largest shareholder describes performance of group as "unsatisfactory" After months of rumours Duke Street Capital have finally made a bid for the troubled Esporta group which runs the Riverside Club and the new gym in Chiswick Park. The 80p a share bid values the group at £133 million with the bidder describing the existing performance as "unsatisfactory". The share price has risen in expectation of a contested take-over. The bidders stated, "Esporta has introduced a wide range of staff and other cost reduction programmes that risk compromising service levels within clubs. Esporta has been offering new memberships without a signing-on fee – this may increase the number of members in the short term – but it may reduce customer loyalty and risks increasing the churn rate – undercutting the competition in this way can only give a temporary advantage." The Esporta board has responded to the bid by stating that it "materially undervalues the company and its prospects". They recently issued a trading update which claimed a upturn in new memberships and new Chief Executive Maurice Kelly has undertaken a review of costs. Last month Esporta chairman John Grieves told the annual meeting of shareholders that membership had grown 16% this year. This was achieved in part by dramatic reductions in joining fees such as recent offers available at the club in Chiswick Park. The private equity firm, which already owns 24.8% of Esporta and is the largest single shareholder, said its offer is "full and fair." Esporta has been accused of inflating revenues by booking as its own the earnings of the self-employed sports instructors who work at the centres. This allows them to report higher revenues but means that the instructors have to pay VAT which they would otherwise be exempt from. A more normal practise is for instructors to be paid directly by their clients. Esporta's finance director claimed that the revenues are correctly stated but some estimate this practise has boosted Esporta's revenue by up to £5.25 million. Esporta's last set of results were extremely disappointing with new membership take-up slow and hit by a £4 million write-off to make provisions for the decline in the secondary market value of memberships to Chiswick Riverside. The company's own numbers showed that nearly a third of members were not renewing. There has been some speculation that Duke Street are looking to asset strip the existing Esporta business and realise the potential of property assets such as the prime site on which the Riverside is situated. However, the bid is being led by Nick Irens the former head of Cannons which suggests to some that Duke Street intend to keep the most of the group's 41 clubs in operation. £4 million Chiswick Riverside write-off stuns Esporta June 8, 2002
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