‘Kama Sutra’ publisher Quarto rebuffs £90m takeover

Quarto Group, the debt-ridden UK publisher of Bedside Kama Sutra, has rebuffed a takeover approach from a US investor that would give the company an enterprise value of about £90m.

The London Stock Exchange-listed company has repeatedly rejected overtures from Richard Hurowitz, a US investor and publisher of quarterly “journal of ideas” The Octavian Report, said people informed about the matter.

Quarto has instead opted to raise fresh funds to reduce its debt burden through a new open offer of its shares, which is due to be approved by shareholders on Friday.

Quarto’s shares, which have lost three-quarters of their value since early 2017, closed up 5 per cent on Tuesday.

The decision by the Islington-based publisher of illustrated books to rebuff Mr Hurowitz’s all-cash offer comes after a shareholder revolt in May over the company’s inability to reduce its debt levels. Quarto’s overall business has been struggling as revenues have fallen sharply and it has failed to turn a profit since 2015.

In late August, Mr Hurowitz proposed to acquire Quarto for 100p per share, a premium on its market value at the time of about 50 per cent. As part of the offer, the US investor proposed to acquire the 34 per cent stake owned by Quarto’s chief executive, CK Lau, and to repay part of its $65m debt load.

The offer was rejected early in October in a letter from Andy Cumming, Quarto’s chairman, to Mr Hurowitz.

The US investor subsequently wrote back on October 28 to clarify that he planned to extend the offer made to Mr Lau to all shareholders and he also added that he was willing to set up a structure to maintain the company’s public listing. The offer was rejected again by Mr Cumming on November 18.

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Quarto has recently proposed to raise about £14m by issuing roughly 20m new common shares at a value of 68p each, which is significantly lower than the offer Mr Hurowitz first proposed.

The new share offer is being underwritten by Mr Lau and Giunti Editori, one of Italy’s largest publishers, based in Florence. Jointly they will gain full control of the company.

Quarto has set up a special meeting on January 31 to move ahead with the issuance of new shares.

“Over the last 24 months, the [Quarto] Group has taken steps to address the challenges that it has been experiencing and . . . continues to focus on right-sizing the group, pursuing a path of sustainable debt reduction and focusing on the group’s core business strengths of creating and developing popular and diverse content for its portfolio of imprints,” Quarto said in its offering documents.

Its existing public investors were not aware of the offer made by Mr Hurowitz.

The US investor is being advised by Greenhill, the New York-based boutique investment bank, and corporate law firm Wachtell, Lipton, Rosen & Katz.

Quarto did not respond to requests for comment.

A spokesperson for Mr Hurowitz declined to comment.

How to make publishing pay

The 44-year-old picture book publisher specialises in how-to manuals on topics that range from cooking and drawing to sex, but has said that sales of adult titles remain “challenging” because of consolidation among rivals.

Its children’s collection, which includes titles such as its Little People, Big Dreams series on famous activists and the educational game Squishy Human Body, has instead become increasingly important and made up a third of the group’s $149m revenues in 2018. It made a small pre-tax loss of $57,000 in the same year.

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“I don’t think I’m particularly surprised that they would have turned down an offer, there is a lot of value at the company,” said Paul Mumford of Cavendish Asset Management, which owns a small stake in Quarto. “But the high level of debt makes life difficult for them.”

The company has had a series of board reshuffles over the past decade. Laurence Orbach, one of the company’s founders, was deposed as executive chairman in 2012 after a shareholder vote.

Six years later, he pushed his way back to the board with the help of the Hong Kong-based publisher and shareholder CK Lau. Mr Lau became chief executive just a week later, after his predecessor Marcus Leaver resigned with immediate effect.

Patricia Nilsson



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