City gives the cold shoulder to Debenhams' £1.8bn flotation

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The Independent Online

Debenhams' £1.8bn return to the stock market received a frosty reception from some of the City's top fund managers, who warned yesterday the flotation attempt could fail unless the price was set at the bottom of the 195p-to 250p-a-share range.

Potential investors queried the scope to grow a business that was taken private only in December 2003 and has already repaid its private-equity backers' original investment more than twice over. The proposed IPO will net the department store group's top three executives a paper fortune of about £100m and hand a further £50m to the next 300 or so managers.

Rob Templeman, the chief executive, John Lovering, the chairman, and Chris Woodhouse, the finance director, who own just under 12 per cent between them, are expected to cash in 30 per cent of their holding, which will be worth up to £33m. Along with Debenhams' private-equity owners - CVC, Texas Pacific and Merrill Lynch - who bought the business for £1.7bn plus £100m debt, the current owners will control about 45 per cent of the group if it manages to persuade investors to buy its shares.

Several retail fund managers said they were "not interested" in subscribing for the shares, which will be priced and start conditional dealings on 4 May. "What they're proposing seems totally ridiculous. They are bringing back a company that was in the public domain two-ish years ago and yet it doesn't have any property in it," one investor said.

Another added: "It's boring. At the top end it looks bloody expensive but they have probably set themselves a wide enough range to get it away. All you are going to get is a decent retailer that will spend the next two years paying back debt."

A spokesman for F&C Asset Management said: "We will be looking at the bottom end on valuation, which reflects the fact that we see the benchmark as Next rather than Marks & Spencer."

Debenhams' share offering is being marketed on the strength that it has been priced at a 20 per cent discount to both the retail sector and M&S. Yet it does not own any of its freehold properties, having sold and leased back stores worth £430m soon after it was purchased to help pay down the acquisition debt and fund a handout to its backers. Two major refinancings have paid out £1.3bn to its owners in dividends.

At the mid-point of the range, Debenhams will have a market capitalisation of about £1.8bn, plus £1.2bn debt. It is raising £680m from issuing 315 million new shares, after paying out £20m in advisers' fees. It will use part of the proceeds to pay down debt.

The float will test the underlying strength of the bullish stock market. It is set to be the biggest in the UK for almost three years. The other factor weighing against the mooted IPO is the state of the high street. Debenhams said yesterday that its underlying sales growth has slowed to 1.7 per cent in the 32 weeks to 15 April. It sees scope to double its department stores to 240 and add 100 stores to its women-only Desire chain. It also plans to expand overseas through franchise agreements.

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