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Debenhams bidders may be forced to raise price

Nigel Cope,City Editor
Wednesday 23 July 2003 00:00 BST
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Shareholders in Debenhams called for a higher takeover price for the retailer yesterday after the company issued a buoyant trading update boosted by the recent sunny weather.

Debenhams shares climbed 6.75p to 423.75p, only fractionally lower than the 425p offer price indicated by Permira, the venture capital group whose bid values the company at £1.5bn. Investors said the upbeat trading statement, combined with rival bid interest from the CVC Partners-Texas Pacific consortium, meant the take-out price may have to be around 10 per cent higher.

One of Debenhams institutional shareholders said: "I think the 425p price has gone. Either they will have to increase it or withdraw."

Mike Felton, head of retail equities at ISIS fund managers, which owns 2.5 percent of the company's shares, added: "I don't want to feel as though the company is being given away. I think we would be disappointed with 425p. The business is performing very well and we still believe in its growth prospects."

That view was echoed by David Cummings, head of UK equities at Standard Life Investments, which has a 4.9 percent stake. "Our view is that 425p is too low," he said.

Permira, whose bid is being backed by Goldman Sachs and Blackstone, the US venture capital group, is expected to make its formal bid for Debenhams either this week or next. Its bid vehicle would be chaired by former Arcadia chief executive, Stuart Rose.

The CVC-Texas Pacific bid, which has additional backing from HBOS, is running slightly behind, though both bidders are working with the current Debenhams management led by Belinda Earl, chief executive and Matthew Roberts, finance director. CVC and Texas Pacific are working with John Lovering, the former Homebase boss.

Debenhams said yesterday that like-for-like sales in the 20 weeks to 19 July were up 3.8 per cent with gross margins up 0.6 percentage points. In the last 10 weeks, including the first two weeks of the summer sale, like-for-like sales are up by 5 per cent.

Strong sellers have included the Designers at Debenhams range, including names like Jasper Conran and John Rocha. Among the concessions, the Rubicon-owned Principles has been one of the most successful.

Ms Earl commented: "Debenhams continues to trade well and in line with our expectations. We are benefiting from the ongoing investment in our stores and the brand. Our womenswear business is on an improving trend with young fashion brands showing strong sales growth."

The figures are stronger than those reported by Marks & Spencer last week when it said non-food sales were up 2.8 per cent on a like-for-like basis.

"It's a good performance given the current market and what we've seen from M&S," said retail analyst John Baillie at SG Securities. He added that 425p was "looking a little cheap now". Analysts at Seymour Pierce and Evolution Beeson Gregory all think 450p a fairer takeover price and Williams de Broë thinks anything below that "would be a steal".

Nick Bubb at Evolution Beeson Gregory said: "We don't expect a Hamleys-type auction but we see decent upside ... with a 450p target."

The bids will be reviewed by Debenhams' committee of non-executive directors, led by Tim Clarke and Peter Jarvis, the chairman.

Debenhams is the latest in a string of retail takeover bids following the acquisition of Arcadia by retail entrepreneur Philip Green. Allders and Selfridges have already been take private with Hamleys also on the brink of a deal. House of Fraser and Somerfield have seen off takeover attempts.

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