Debenhams to back £1.5bn Permira bid

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The Independent Online

The Board of Debenhams, the department store retailer, was on the brink of recommending a £1.54m bid from the venture capital group Permira last night. The bid, tabled yesterday, was pitched at 425p per share.

It is understood the independent directors of Debenhams were still working on the wording of a recommendation last night with a formal announcement expected on Monday morning.

A recommendation would put Permira in the driving seat in what could become a bid battle. It may still face competition from a rival consortium including CVC Partners and Texas Pacific with additional funding from HBOS and Lehman Brothers. However, this group is still completing its due diligence.

The Debenhams board faced a complex task in its deliberations as the Permira bid was pitched below yesterday's closing price of 427p as the market anticipated a higher offer. However, if it rejected the terms the board ran the risk of both bidders walking away with the consequent risk of a sharp fall in the share price, which was trading at about 330p before the first bid approach.

Permira's bid is being reviewed by Debenhams' non-executive directors as the offer includes the company's management team, led by Belinda Earl, the chief executive and Matthew Roberts, the finance director. Ms Earl and Mr Roberts are also involved in the rival bid group. The Permira camp has recruited the former Arcadia boss Stuart Rose to be Debenhams chairman if its bid succeeds.

Analysts speculated over the possibility of a bid battle. "There is a consensus that there is a higher bid out there somewhere," Nick Bubb, a retail analyst at Evolution Beeson Gregory said. Numis Securities said the shares would ultimately trade above 450p. "If a bidding war begins, 450p could be conservative," it added.

Speculation over the possibility of a higher bid was fuelled this week when Debenhams issued an upbeat trading statement showing that like-for-like sales in the past 10 weeks were up by 5 per cent on the same period last year.

Several of Debenhams institutional investors have said in the past few days that they would not be happy with 425p per share. But the Debenhams board felt it should give investors the opportunity to look at the Permira offer. Fund managers are increasingly concerned about accepting private equity bids, feeling that if there is greater value to be extracted the management should deliver it to existing shareholders.