All is not well in Arcadia – that £40m may only be £20m

Fashion retailer Arcadia's expected £40m sale of four of its key brands is only likely to raise half that amount, the Independent on Sunday has learned.

The pending management buy-outs of Warehouse, Principles, Racing Green, and Hawkshead are more likely to raise around £20m, according to sources close to the company.

Exact figures have not been finalised because the different management groups are currently checking the accounts of the four companies in the due diligence process. However the deal is thought to be close to completion.

"The £40m price was vastly exaggerated. It will definitely be less than £30m," said a source close to the deal.

Privately, City analysts said they have valued the four brands at around £20m.

The buyouts are being headed by existing management – Peter Davies, managing director of Hawkshead and Racing Green, and Hilary Riva, managing director of Warehouse and Principles.

The bosses are backed by Bridgepoint Capital, the private equity firm that is currently rumoured to be considering a bid for Waterstone's, the bookseller owned by HMV.

Arcadia has 12 brands, and chief executive Stuart Rose was brought in seven months ago to rationalise the company, by selling off non-core brands and using the cash to reduce debt. Since Mr Rose came in, the company's shares have risen more than 500 per cent to Friday's close of 278p – one of the year's star performers. He is highly regarded in the City and the talks to sell off the four brands will win favour with investors.

So far in the selling spree, Arcadia has raised £7.5m from the sale of Wade Smith, the children's clothes retailer, to the founder, Robert Wade Smith.

It is widely expected that Miss Selfridge is also to be hived off as it is a direct rival to one of Arcadia's most successful brands, Top Shop. Arcadia also owns Burton Group, Wallis, Evans, and Dorothy Perkins.

Separately, women's clothing retailer Oasis is also currently in management buy-out talks backed by PPM Ventures.

The corporate activity in the clothing sector has been driven by the downturn in sentiment as the City fears the slowdown in the economy will hit it hard.