Gateway takeover talk given a boost

SPECULATION about a possible trade sale of Gateway, the financially troubled supermarket chain, mounted yesterday after publication of a report suggesting its bonds were undervalued.

Company sources said it was not in active talks with a bidder, but there is thought to have been informal interest from Continental buyers.

Gary Klesch, a bond trader specialising in the debt of distressed companies like Isosceles, Gateway's parent, said: 'In the light of Tesco and Sainsbury bidding for William Low, it is not surprising that other retailers might be looking for acquisitions.'

The Klesch & Company research report argued that Gateway was particularly attractive due to unused tax losses of pounds 1.3bn which could be offset by a purchaser against taxable profits. It estimated the losses gave Gateway a value of at least pounds 217m.

Gateway, which owns the Somerfield and Food Giant chains, brought in new management after the third financial restructuring of Isosceles in July 1993. The pounds 1bn restructuring involved a substantial debt-to-equity swap for lenders and isolated the day-to- day operations from Isosceles.

The arrangement means lenders to Isosceles will be repaid by the October 1996 payment deadline only if Gateway is floated or sold.

Gateway reported profits before tax of pounds 26m last year against 1992 losses of pounds 265m.