DEALWATCH:Comet Buyer Pool Shrinks As Kesa Adamant Buyer Keeps Chain

Kesa Electricals PLC (KESA.LN) won't consider selling its struggling U.K. electricals chain Comet to anyone who would place it into administration, shrinking the pool of potential acquirers that likely includes several specialist liquidators.

The company last month said it is considering all options, including a sale of the embattled business, which lost EUR10 million in fiscal 2011, but a person close to the company said Friday Kesa will not consider a sale unless the new owner plans to run the retail chain as a going concern.

That means that several restructuring specialists that have reportedly expressed interest, such as GA Europe, Hilco and Gordon Brothers, are likely to be out of the running given their precedent in liquidations.

That leaves private equity group OpCapita as a strong contender for the chain. Gordon Brothers is working with OpCapita in an advisory capacity looking at Comet's inventory to allow OpCapita to raise sufficient working capital to run the business, a person familiar with the situation told Dow Jones Newswires.

OpCapita's investment remit is to reorganize failing businesses and it counts David Hamid, a former Dixons Retail PLC (DXNS.LN) board member and ex Halfords PLC (HFD.LN) chief executive among its operating board.

It also has acquisition history with Kesa, as it was part of a consortium that bought French furniture and electricals retailer BUT from the company for EUR550 million in 2008.

But it could face competition in the form of John Weight, a former Kingfisher PLC (KGF.LN) executive and the head of turnaround company Weight Partners, who is also reported to have made an offer for the company. Weight Partners declined to comment.

A spokesman for GA Europe declined to comment at such an early stage of the sale process but pointed out that restructuring is the company's strong point. Gordon Brothers was not available for comment and Hilco declined to comment.

Trade buyers for Comet are few and far between. Larger rival Dixons is already downsizing its store portfolio and would be unlikely to get Competition Commission clearance for a buy, while U.S. firm Best Buy Co Inc. (BBY), is in the business of much larger stores and therefore an unlikely bidder according to one retail analyst.

The clock is ticking on a sale of Comet after Kesa's largest shareholder, activist investor Knight Vinke which holds 19.3% of the group, wrote an open letter to the company earlier this month saying that Kesa must resolve the situation by its Annual General Meeting in September and it must get an acceptable price. First round bids were due last week according to a person close to the company.

Analysts are broadly agreed that Kesa would have to pay someone to take the company off its hands, but the size of any working capital 'dowry' is not clear, with one London-based analyst estimating a figure of at least GBP50 million.

If a sale can't be made, Kesa said it will hold onto Comet and turn it around by slimming down and overhauling its 250-store portfolio, and cutting costs while refocusing on service in the hope of returning to profit.

By Kathy Gordon, Dow Jones Newswires; 44-207-842-9293; [e-mail]