Debenhams forced to float at bottom of price range

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The Independent Online

Debenhams, the department store group that re-lists on the stock market today after an absence of less than three years, has been forced to price its initial public offering at 195p a share, the bottom of the range it set two weeks ago.

Lukewarm reaction from institutional investors, who have missed out on the multimillion-pound windfalls reaped by Debenhams' existing owners, prompted the company to abandon its hopes of achieving a £2bn-plus market capitalisation on day one.

The company set a target range of 195p-250p a share two weeks ago but bankers advising the group have slashed the price range to 195p-210p a share yesterday before setting the offer at 195p late last night, valuing Debenhams at £1.65bn.The group was sold to a private equity consortium comprising CVC Capital, Merrill Lynch Private Equity and Texas Pacific Group in a £1.7bn deal in December 2003.

Sources close to the group insisted the marketing process had gone well. The book had been covered just over two times.

Some of the City's top fund managers have said they would only consider buying shares in Debenhams at the lower end of the mooted valuation. Many are sore that they sold out too cheaply, especially given the speed with which Debenhams is reappearing on the stock market. The group will also re-list with £1.2bn of debt, despite being sold with barely any.

Those sceptical of the group's growth prospects worry about competition from a resurgent Marks & Spencer; limited investment from its current owners; its debt mountain; the prospect that its ambitious new store opening programme will cannibalise existing sales; and the weak retail backdrop. They argue that its backers have squeezed all the easy wins out of the group, leaving little for its new owners.

The shares were priced in a meeting late last night and will begin conditional dealing at 8am this morning. Private investors will have to wait a further week before they can buy into the company. IG Index, the spread betting firm, is quoting a grey market price of 217p to 222p for the shares, which is where it thinks they will close at the end of the first day of unconditional dealings. Its rival, Cantor Index, is less optimistic, offering a range of 210p to 216p.

Rob Templeman, the chief executive, will cash in shares worth about £9m, keeping a stake worth about £28m. Chris Woodhouse, the finance director, will get about £11m from selling shares, keeping stock worth £25m, while John Lovering, the chairman, will raise about £6m, hanging on to a £13m stake.

The group, which began life in 1905, has 123 department stores in the UK and Ireland. Today marks the third time that its shares have been sold to the public.