Debenhams' management to invest £2m in buyout

The senior management team at Debenhams will invest more than £2m in the buyout of the business, it emerged yesterday as the department store retailer's independent directors recommended a £1.54bn bid from venture capital group Permira.

Under the terms of the 425p per share bid the directors, led by Belinda Earl, the chief executive, will receive payouts from shares and options worth a total of £7m. Of this Ms Earl's haul is the largest at £2.5m. After tax, the management team will then reinvest £2.4m between them in return for a 6.9 per cent equity stake in the new company.

The total equity being injected to fund the deal is just £30m with £500m of shareholder loans from Permira and its buyout partners Blackstone Group and Goldman Sachs. The remaining £1bn is debt finance provided by Barclays, Royal Bank of Scotland, Citibank and UBS.

Permira will hold 37.5 per cent of the equity, with Blackstone holding 20.8 per cent and Goldman Sachs another 20.8 per cent. The remaining equity will be held by other senior Debenhams managers though it is not clear how much has been allocated to ex-Arcadia boss Stuart Rose who will be chairman.

Charles Sherwood, a partner in Permira, defended the payments saying: "They are taking risk in the new venture and the management must generate a 12.5 per cent return on the equity providers' money in order to recoup anything from their investment."

The board's recommendation of the bid hardly represented a ringing endorsement. "The offer represents a proposal worthy of serious consideration in the absence of a higher offer being received," it said.

Debenhams shares rose 9.5p to 432.5p as the market bet on a higher offer from rival bidding group CVC Capital and Texas Pacific Group. Mr Sherwood said: "If there is no higher offer I think shareholders will accept it, as it represents very good value."

Mr Sherwood said the bid price was a 50 per cent premium to the 281p average Debenhams share price in the six months prior to the deal, although this period includes the worst of the recent stock market slump. The bid for Debenhams is thought to be the second largest UK private equity deal after Yell, the telephone directories business sold for £2.1m last year.