Battle lines are set to be drawn this week for a full-scale £2bn bid war over Debenhams, the department store chain that has just opened its latest branch in the rebuild Bullring centre in Birmingham.
A £1.5bn bid from the Permira consortium is due to expire tomorrow. It must decide whether to extend it again while a rival consortium led by CVC Capital and Texas Pacific Group prepares to enter the fray. Permira includes the US investment bank and Blackstone Group, the American private-equity concern that owns the Savoy Hotel group.
Stakes were raised last week by an upbeat trading statement from the retailer reporting a 7.9 per cent increase in total sales in the 26 weeks to 30 August, compared with the same period last year. Like-for-like sales rose by 3.9 per cent. This was seen as impressive in light of last month's heatwave, which hit retailers' sales.
The trading statement prompted Investec Securities to upgrade its pre-tax profit forecast from £165m to £172m for the year ending August which, if fulfilled, would automatically justify a higher price for Debenhams. That trading information will form a vital piece in the jigsaw CVC and Texas Pacific are assembling, but the sparring is likely to continue until Debenhams produces its full-year results on 14 October.
CVC and Texas Capital should know as much as any outsiders about how well Debenhams has been performing, because the retailer has agreed to pay £6m "inducement" fees to CVC and Texas if they inform it before 30 September they no longer wish to proceed with a possible offer of more than 425p a share, the level of the Permira bid. That has given Debenhams' management, led by Belinda Earl, an incentive to provide CVC and Texas with as much legitimate data as possible to complete due diligence investigations.
Matthew McEachran of Investec said: "We believe that a higher offer will be needed, and a contested situation cannot be ruled out yet."
CVC, Texas and Debenhams declined to comment on the situation. Debenhams shares closed at 433p on Friday.Reuse content