Battle looms over Harvey Nichols buyout as largest minority shareholder rejects Poon offer

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The proposed £137.5m buyout of Harvey Nichols looked likely to develop into a bruising battle yesterday after the department store retailer's largest independent shareholder said it would reject the deal.

Deutsche Asset Management, which has a 14 per cent blocking stake in the upmarket retailer, said the 250p-a-share offer undervalued the company. "We should be looking at a price well above 300p a share," the fund manager said.

Invesco Perpetual and Henderson Global Investors also voiced opposition to the buyout, which has been put forward by Dickson Poon, a Hong Kong businessman who owns 50.1 per cent of the shares.

Harvey Nichols shares fell 25p to 201.5p on fears the deal would fail. Mr Poon's buyout vehicle Broadgain said it would not improve the terms of the offer but would consider reconfiguring it as a straight takeover rather than a "scheme of arrangement".

A scheme of arrangement needs the backing of 75 per cent of the independent shares. Deutsche Asset can therefore scupper the deal as its shareholding equates to 28 per cent of the minority.

But Mr Poon's advisers said Broadgain might switch to a straight takeover offer, which would enable it to apply to the Financial Services Authority to delist the company if it could secure 75 per cent of the total equity. This would leave dissenting institutions in limbo with a large minority stake in a private company. However the FSA said: "It's not an automatic delisting. The FSA has some discretion on this."

Colin Hughes, at Henderson, said he was prepared to stand up to Mr Poon. "Come on then," he said. "Let's have a debate. I'm not spoiling for a fight but this offer is not fair value, full stop."

Institutions expressed concerns that Mr Poon might pursue various "nuclear" options such as dismissing the non-executives or allowing operating costs to escalate.

Harvey Nichols announced half-year results showing an 19 per cent fall in profits to £5.6m, with like-for-like sales down 0.8 per cent on last year. The current trading statement was more positive, with underlying sales in the four weeks since 28 September up by 5.3 per cent. Analysts reckoned like-for-like sales at the flagship store in London's Knightsbridge were up by 3 to 4 per cent, though the company said trading at its top store was "difficult and volatile".

Mr Hughes at Henderson, which owns 1 per cent of the shares, said Mr Poon's offer was "backward looking" as it ignored the new store in Edinburgh and a planned new outlet in Manchester.

Deutsche Asset Management added that models based on cash flow return on investment could give a theoretical value of 350p a share, it said.