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Written by: Staff

MELBOURNE, Mar 13 (Reuters) Australia's largest retailer, Coles Myer Ltd., said it will sell its Myer department store chain to a consortium led by private equity firm Newbridge Capital for A$1.4 billion ($1.0 billion), pushing its shares up 4 percent.

The consortium, which also includes Newbridge affiliate Texas Pacific Group and the family of Myer's founder, will buy both the 60-store business and a flagship Melbourne property that sprawls across part of two city blocks in the city's retail area.

''It is a great result, a great price and I think higher than most were expecting,'' Constellation Capital Management analyst Megan Fischer said.

The sale of the underperforming department stores will allow Coles Myer to focus on its grocery and liquor business, which is lagging rival Woolworths Ltd.

''Our decision to divest has been driven by the board's belief that both our core food and liquor business and Myer will perform better separated,'' Coles Myer Chairman Rick Allert said in a statement.

Newbridge became the favourite last week to buy the stores, particularly after a rival bidder, South Africa's Edgars Consolidated Ltd., dropped out of the race.

Myer is an Australian retail institution founded in 1900 by Sidney Myer, who arrived as a penniless Russian immigrant.

It was bought by Coles in 1985 in a A$1 billion deal, but the Myer stores sat uneasily within the larger group, in which the Myer family has a stake of between 3 and 5 percent. The family will hold less than 10 percent of the separated Myer business.

''Coles Myer is the only retailer in the world which has tried to combine full-line department stores and supermarkets,'' Allert said.

COLES EXPANSION Coles said proceeds would be used to fund expansion and an improved performance from food and liquor. It would also consider a return of capital to shareholders.

Newbridge is the Asian-Pacific investment arm of Texas Pacific Group, which was part of a consortium that bought UK department store Debenhams in 2003 for 1.72 billion pounds.

Debenhams last November posted a doubling of its annual pre-tax profit, and there is speculation that the retailer could be refloated on the London stock market this calendar year.

Texas Pacific Group was also part of a successful bid last year for U.S. upscale department store chain Neiman Marcus.

Newbridge said Bill Wavish, former finance director and director of supermarkets at Woolworths, would join Myer as executive chairman.

Myer posted a loss in fiscal 2002 as it battled competition from up-scale department store company David Jones Ltd., discount variety stores and specialty retailers.

Earnings before interest and tax (EBIT) were A$38.7 million in fiscal 2005 on sales of A$3.1 billion, but fell 46 percent from the previous year. Myer contributed about 3 percent to underlying retail EBIT for the Coles Myer group.

''Clearly Newbridge believes they can focus that business and get much higher profit margins,'' Shaw Stockbroking analyst Scott Marshall said.

Coles Myer last year appointed advisers Carnegie Wylie&Co. to study whether to sell Myer in a trade sale, spin it off in a separate listing or retain the business, which mostly occupies leased sites.

It called for separate bids for the department stores and the flagship central Melbourne property that it owns.

The Newbridge consortium beat rival bids by Edgars Consolidated, CVC Asia Pacific, and on the property side bids from CFS Gandel Retail Trust and Lend Lease Corp. Ltd. AX> Shares in Coles Myer, which will consider a new company name in the next few weeks, added as much as 4.5 percent to A$10.42 in morning trade before easing to A$10.39, while David Jones shares slipped 2.7 percent to A$2.94 and Woolworths shares added 1.1 percent to A$19.12 ($1=A$1.37) Reuters AD VP0758

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