Nero's empire building ends with failure to conquer Republic

Caffe Nero has finally conceded defeat in its bid to take over rival coffee house operator Coffee Republic. In a statement issued late last week, Caffe Nero said that it had given up its attempts to buy the company after its latest offer was rejected by the Coffee Republic board, but that it would retain its minority stake in the company.

Caffe Nero had offered to pay 4.5p per share for Coffee Republic, valuing the company at some £10.1 million, but its offer was met once again with stoic silence by the latter group's board.

"Coffee Republic's board has refused to enter into any discussions regarding this proposal and has not allowed Caffe Nero access to verify standard issues, such as how much debt Coffee Republic has and if there is any outstanding litigation,"​ Caffe Nero said in the statement.

The company continued by saying that it believed Coffee Republic's board had made a mistake by refusing to even consider the offer, as the two companies shared a number of synergies which would have added value to the combined business. "Caffe Nero was even willing to pay a premium for Coffee Republic for its strategic value,"​ the statement said.

"As the third largest shareholder in Coffee Republic [with around 10 per cent], Caffe Nero is unaware of how Coffee Republic intends to deliver shareholder value in the next few months above and beyond Caffe Nero's offer. Nonetheless, if Coffee Republic believes it can deliver greater value, the Caffe Nero board is willing to be supportive and shall wait with interest to see if this can be achieved."​

Caffe Nero is already the leading independent coffee bar operator in the UK with 106 outlets across the country, and clearly sees size as the principal means of making money in a sector which is notoriously difficult. In April this year it acquired the Aroma business for £2.15 million from McDonald's, a move which it said gave it a much greater presence in the UK high street, and clearly a merger with Coffee Republic would further enhance that position.

But Caffe Nero, like most of the other operators in the UK market, is still trading at a loss, with its latest annual results showing operating losses of £798,000 - a 22 per cent improvement on the previous year helped by a 70 per cent hike in turnover to £26.6 million. Much of this improvement came from the addition of Aroma, and the critical mass that Coffee Republic would give the group would certainly bode well for breaking into the black in 2003.

But Coffee Republic, one of the first coffee bar groups in the UK, is determined to remain independent, and is confident of turning round its own financial difficulties without the need for outside investment. Further details on how it hopes to achieve that are expected later this week, and they will certainly make interesting reading for Caffe Nero and other operators in the sector.

Last month the company sold 13 of its outlets to US-based operator Starbucks for £2 million.