Lonrho action may halt House of Fraser float

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The Independent Online
THE FAYED brothers may have to postpone, or even shelve, the proposed pounds 500m flotation of the House of Fraser department stores group because of an impending lawsuit against them from Tiny Rowland's Lonrho.

The flotation, which is being masterminded by SG Warburg, has been pencilled in for spring next year to coincide with HoF's results for the year to January. The Fayeds have put a pounds 500m price tag on the company, which will own all their department stores except the flagship Harrods and boast such names as Army & Navy, DH Evans and Rackhams.

However, Lonrho's case against the Fayeds and their then adviser Kleinwort Benson, which harks back to the Egyptian brothers' controversial takeover of the stores group in 1985, is scheduled to come to court in January and is set down to last six months.

It has also emerged that if Lonrho wins, it will press for restitution of the situation that existed before it sold a 29.9 per cent holding in HoF to the Fayeds in 1984. This would entitle Lonrho to a large stake, hindering the flotation's chances.

Denton Hall Burgin & Warrens, the legal firm advising Lonrho, is confident of winning the case, arguing that most of the relevant facts were brought out in a Department of Trade and Industry report on the takeover. This concluded that Mohammed Al-Fayed and his brother Ali had misrepresented their wealth and origins in order to win control of HoF.

The Fayed camp insists that the case will not interfere with the public offer. A source said: 'There is a theoretical possibility, but we don't seriously think the courts are going to order restitution. It does not make common sense.'

However, if the Fayeds pressed on with the flotation during the court case, Warburgs would be forced to refer to the action in the prospectus.

The Fayed brothers have been able to enlist Brian McGowan, who retired as chief executive of Williams Holdings earlier this year, as chairman of HoF. He is being paid a substantial salary for a few days' work a month. A source close to HoF said Mr McGowan was 'learning about retailing and imparting his experience about the flotation process'.

The price tag placed on the business has been questioned by analysts, who argue that pounds 300m may be the top of the potential range of values. Some have also queried the figures released with the flotation announcement. These indicated that pre-tax profits for the past three years were pounds 32.8m, pounds 18.4m and pounds 30.5m. It has been pointed out that in the 1991/2 figures, nearly two thirds of the profits came from an insurance claim following two fires, a profit on the sale of the group's credit business and a credit from the pension fund.

(Photograph omitted)

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