No Pain, No Gain: Predator thinks there's hot property at Beale stores

Even the doleful stock-market we are experiencing is capable of producing the occasional tantalising development. Corporate action is still on the agenda, although the number of bids and deals has declined dramatically as the credit crunch has bitten deep into confidence.

While it is the upper echelons that produce the headline activity, there are some fascinating excursions undertaken on the undercard. I'm intrigued by unusual goings-on at Beale, the little department-store chain that was finding the going tough even before the retail sector as a whole felt the pinch.

The veteran property entrepreneur Andrew Perloff, who knows a bargain when he sees one, clearly came to the conclusion that the department-store chain is absurdly undervalued, so he is attempting to unlock Beale's assets. It is possible his action could encourage others to mount opportunistic assaults on other underperforming groups.

The shares were bumping along at a depressed 26p in early June when he arrived. His pension fund acquired a 6.1 per cent stake and for a few weeks the shares barely stirred.

Now, Perloff is upping the pressure. The predator has launched a tender offer of 36p a share for up to 21.9 per cent of the capital. His stake could, together with a few other shares gathered, become a threatening 28 per cent-plus.

It is certainly not Beale's trading prospects that roused him. Interim profits were slightly higher at £881,000, but like-for-like sales fell 6.4 per cent, with cost savings and a store closure largely responsible for the marginal profits rise. Chairman Mike Killingley offered little encouragement for the rest of the year.

Clearly, it's Beale's properties that Perloff finds attractive. The group runs 11 stores, spreading from Kendall in Cumbria to Bournemouth on the south coast. Estimates put assets at more than 100p a share. This may be on the high side; values could have been eroded as the commercial property environment deteriorated. Even so, there's no doubt that the shares had completely lost touch with their asset backing.

Unless he puts more cash on the table, Perloff the predator hasn't much chance of achieving his target. The Beale directors, not surprisingly, have given him the cold shoulder. And the shares have climbed to around 40p following the tender.

An experienced campaigner such as Perloff must have realised that his tender manoeuvre may not produce a worthwhile stake. The terms were pitched too tightly. But could he have an ulterior motive? His intention may be to put pressure on Beale's directors, perhaps encouraging them to develop some of the property portfolio.

He may, also, have the Thompson family in his sights. The Thompsons made about £300m creating and selling the Hillsdown food group in the 1980s. The family has 24.4 per cent of Beale. The shares are held by Hoopers, an ambitious and highly regarded department store chain the family runs from Torquay. Much of the Hoopers' interest was purchased at prices near 100p.

The Thompsons cannot be happy about the decline. So could the Perloff presence prompt them to take greater interest, perhaps even bidding for full ownership or pumping in Hoopers through a reverse takeover? The current action could even encourage an outsider to pounce.

Beale was started, as Fancy Fair, by John Beale in Bournemouth in 1881. His family is still involved although the chief executive, drafted in two months ago, is an ex-BHS man, Tony Brown.

If Perloff had personally wanted to unlock Beale's assets, he would surely have mounted a full takeover bid or at least made his offer more tempting. It is intriguing that his cut-off point is less than 29.9 per cent, the highest level without triggering a bid obligation. In the past, Perloff's major acquisitions have been mounted through Panther Securities, his quoted property company.

The Beale affair underlines that in these uncertain days some shares have fallen so steeply they are completely out of touch with reality. Georgica, the 10-pin bowling chain that was once a constituent of the No Pain, No Gain portfolio, is one; despite a hovering predator, its shares are around 30p against a possible 80p of assets.

Such yawning gaps could offer rewards for patient investors. Even in the midst of misery, there are opportunities. And I believe that fancy footwork, like short selling, is not essential to take advantage of these hidden riches.