Financial Predators Stalk Co-op Funerals Arm

The Co-operative Group has rebuffed a string of takeover approaches for its funerals arm amid a controversial restructuring of its troubled banking division.

Sky News has learnt that buyout firms including CVC Capital Partners, the controlling shareholder of Formula One motor racing, and Montagu Private Equity, a former owner of the Dignity (LSE: DTY.L - news) funeral planning business, are among a large number of parties to have expressed an interest in acquiring the Co-op unit in recent weeks.

The prospective buyers have all been rebuffed by the Co-op, whose new chief executive, Euan Sutherland, has made it clear that he does not want to part with any of the mutual's "crown jewel" assets.

The precise value of the Co-op Funeralcare business is unclear, but analysts expect that it would be worth hundreds of millions of pounds if it were to be sold.

With around 880 sites across the UK, the Co-op is the largest private provider of funeralcare services in the UK.

CVC (Taiwan OTC: 4744.TWO - news) , which recently lost out in the bidding for OGF, a leading funerals operator in France, is understood to have been working on an offer for the Co-op business for some time and had made several approaches suggesting different structures for a possible deal, according to a person close to the mutual.

Montagu, which made a handsome return from its ownership of Dignity between 2002 and 2004, when it floated on the London Stock Exchange (LSE: LSE.L - news) .

Mr Sutherland is understood to view the approaches as opportunistic and believes that offloading the Funeralcare arm would anger the Co-op's 7.2m members.

"There is no interest in selling and that has been made clear to those who have made approaches," said the source.

The Co-op has said it will offload its general insurance division but has vowed to hold onto its core businesses, which include its food retail chain and pharmacy operations.

Interest in the funerals arm comes amid a contentious restructuring of the mutual's bank, which had its credit rating downgraded five notches in May following its withdrawal from a deal to acquire 632 branches from Lloyds Banking Group (Other OTC: LLOBF - news) .

A heavyweight new management team, led by former HSBC (LSE: HSBA.L - news) executive Niall Booker, was parachuted into the bank, and was tasked with devising a restructuring plan aimed at filling a £1.5bn capital hole identified by the PRA.

That plan involves the Co-op Group injecting £1bn of new capital, while bondholders will swap their existing debt for new debt and a chunk of shares in a new company that will be listed on the London Stock Exchange.

Bondholders angered by the proposed terms have vowed to fight for a better deal, with two US hedge funds buying up a chunk of the bank's debt, but could see their investments wiped out if they voted to block it in the autumn. Under that scenario, the banking regulator would probably take control of the Co-op Bank under a new resolution programme.

Spokesmen for the Co-op, CVC and Montagu all declined to comment.