Climb-down as Somerfield cuts issue price

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The Independent Online
TOM STEVENSON

City Editor

Somerfield bowed to the market's increasing disillusionment with new issues last night, pitching its flotation at 160p a share, well below the previously indicated range of 180p to 190p. At that price, the supermarket chain, Britain's fifth-largest, is valued at just pounds 480m, almost pounds 100m less than hoped for earlier this week.

News of the climb-down emerged late last night, after a board meeting had concluded that the lower-than-expected price tag put on the Allied Carpets flotation earlier in the week, and the recent profits warning from rival Iceland, meant that only by slashing the offer price could a successful market debut be assured.

Despite the cut in the issue price, doubts were expressed last night by some analysts whether Somerfield would still be able to attract enough institutional support to allow the flotation to proceed by the close of the offer next Thursday.

At 160p, Somerfield is being floated on a prospective price/earnings ratio of 5.7 times and a yield of more than 8 per cent. That compares with ratings in the low to mid-teens for rival supermarket chains such as Kwik Save, Asda and Tesco and yields for the same companies of as little as 3.2 per cent.

Volatile trading and falling share prices in London and New York have dented confidence in the new issues market. Shares in nuclear generator British Energy went to an embarrassing discount this week while Monsoon, the fashion retailer, abandoned its flotation plans last week.

In recent days the malaise in the new issues market has also spread to the alternative investment market which until June had been a growing success with each month raising record amounts.

Two companies, headhunter Hat Pin and Alizyme, a small pharmaceuticals business, both opened at discounts. Alizyme lost 15 per cent of its value in its first two days trading.

News of the cut in Somerfield's selling price followed a week of increasing nervousness about the flotation with fears raised that the issue might be pulled at the last moment. Analysts have worried about Somerfield's position in the cut-throat food retail market, with some reckoning the company is worth as little as pounds 450m.

Somerfield initially denied the Iceland profits warning would have an impact on potential investors but the decision by Allied Carpets, another retailer, to rein in its own expectations made last night's cut inevitable.

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