Ten years after listing, Kirkham is on brink of taking DFS private again

Independent directors back improved 442p-a-share offer from sofa company's founder
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The Independent Online

Lord Kirkham, the boss of DFS, yesterday edged closer to regaining control of the sofa retailer he founded more than three decades ago when he bowed to shareholder pressure and raised his proposed takeover bid to 442p per share.

Lord Kirkham, the boss of DFS, yesterday edged closer to regaining control of the sofa retailer he founded more than three decades ago when he bowed to shareholder pressure and raised his proposed takeover bid to 442p per share.

The revised offer, which compares with an initial proposal of 415p per share, won the support of the company's independent directors who said they believed that any firm offer "should be recommended to shareholders". However, shares in the group rose 5 per cent to 444.75p, reflecting optimism that a white knight could emerge. The City was split on whether investors would back Lord Kirkham.

One top 10 shareholder said: "We are slightly underwhelmed. It's not a huge knockout bid." Andy Gray, a fund manager at Scottish Widows, which owns a 4 per cent stake in DFS, said: "We are minded to sit back and wait," despite conceding: "The offer is more in the ball park of where we were looking and worth considering." Some shareholders have said they want at least 450p per share.

Lord Kirkham's bid, which comprises 435p per share in cash plus the 7p interim dividend, values the retailer at around £478m. It comes days after the group issued a gloomy set of interim figures and warned that full-year profits would miss expectations.

The company also flagged the possibility of a multimillion-pound windfall for shareholders if the company wins a long-running battle with Customs & Excise over whether it should pay VAT on interest-free purchases. The company has ring-fenced more than £60m which it could pay out to investors via a special dividend if it wins all of its cases against Customs & Excise, although sources close to the group cautioned that the legal disputes were likely to drag on for at least two years.

In an attempt to justify their decision to grant Lord Kirkham and his financial backers, Nomura, access to the company's books, the independent committee set up to consider the bid admitted they had been rattled by the founder's threat to leave. The committee, headed by Mike Blackburn, a former boss of Halifax, said it had taken "the continuation of Graham Kirkham's important contribution to the success of the company" into account.

Given that Lord Kirkham is to DFS what Bernard Matthews is to frozen turkeys, the non-executives know they must tread carefully when it comes to the question of his future at the group. Lord Kirkham, 59, admitted that it was the prospect of being forced to retire in December when his contract runs out that prompted him to make his takeover approach. The multimillionaire, who bragged recently that he "doesn't come to work for the money", said: "This business is part of me. It's what I do. I can't conceive life without it."

Which is perhaps is why his threat of leaving appears to have fallen on the deaf ears of some shareholders. "I think it's a cheap shot we can ignore," one fund manager said. "There's no question of Kirkham going. He's very committed to it. He loves it."

Scottish Widows' Mr Gray added: "It would be disappointing if he did go; he's done a great job building up the business. But life goes on. Another retailer could come in and do a good job."

That Lord Kirkham is Britain's Mr Sofa is undisputed. His 67-store strong chain sets the competitive bar for the growing number of rivals that have turned their attention to the upholstery market. DFS's sales per square foot, which slipped 3.5 per cent during the past six months to £493, are more than double those achieved by Furniture Village - its closest opponent - while its sales per retail employee, a shade under £500,000, also outflank rivals.

A self-made man, Lord Kirkham's autobiography would read like an entrepreneurial fairy tale if he was ever tempted to write one. Adopted into a Yorkshire mining family, he left school at 16 after failing his five O-levels. The part-time chimney sweep job that he took aged 11 cannott have helped his studies although his lack of qualifications did stymie his dreams of becoming an RAF pilot.

Not that it has held him back. His £257m personal fortune earned him joint-172nd place in The Sunday Times list of Britain's richest.

Rather than fly planes, Graham, as he was then known, started work as a salesman with Hardy's, a high street furniture company that later formed part of the Harris Queensway group. By 22, he was managing a shop while running a fledgling business on the side selling furniture via agents whom he persuaded to turn their front rooms into showrooms. Two years later, in 1969, he put the business knowledge acquired at night school to the test, opening his first shop. Although the fact that the DFS folklore would have you believe the first outlet was located in a former brothel outside Doncaster is testimony to Lord Kirkham's renowned sense of humour, the less colourful truth is that it was located in a former billiards hall.

The sofas and armchairs were made upstairs and displayed in the showroom downstairs, and it wasn't long before that one shop blossomed into the Northern Upholstery Group. The company changed its name in 1983 when Lord Kirkham acquired DFS out of administration, and it was listed on the stock market 10 years later.

With the float came the fortune, the Georgian mansion, the art collection, a knighthood and the eventual peerage. It also allowed Lord Kirkham to demonstrate his gratitude to the Tories with a £4m shot-in-the-arm donation that got John Major's government out of a financial hole. Friends at the time said the gift was his way of saying thank you to a Conservative government that created the benign economic conditions that enabled his business to flourish.

Although Lord Kirkham, who is DFS's biggest shareholder with a 10 per cent stake, was too busy wooing shareholders to comment on his raised offer yesterday, he is understood to be anxious to wrap up a deal quickly. He is planning to invest £150m of his own money in the deal.

Unveiling interim results late last month, he attempted to justify his approach by painting a bleak picture of the competitive landscape, which has seen the likes of MFI and Next jump on the upholstery bandwagon.

The new sofa boys in town have been poaching DFS staff, with staff turnover hitting 40 per cent in some areas, he grumbled. Denying the company was in "meltdown mode", despite the downbeat tone struck in its statement, Lord Kirkham hit back at suggestions that the company was a dog, adding: "If DFS was a dog it would be a Crufts champion." However he surprised the City by applying the brakes to the company's hitherto rapid expansion programme, once the seven new stores it is contracted to open are up and trading.

Analysts, who had argued the business was worth more than Lord Kirkham's original £460m approach, grudgingly admitted that his new offer would probably succeed.

"It's a bit cheap, but not as cheap as it was," Richard Ratner, at Seymour Pierce, said. The question now, analysts added, was whether the independent committee can tempt any rival bidders to enter the fray. Given their absence thus far, and Lord Kirkham's inbuilt advantage as the group's founder and executive chairman, most reckoned that the odds were stacked against a bid battle.

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