House of Fraser keeps options open as Lafayette bid looms
Thursday 19 December 2013
The French department store Galeries Lafayette is in exclusive talks to buy its British rival House of Fraser.
However, the UK stores group is still pushing ahead with plans to float the business next summer in case the talks collapse.
Owners of the British retailer have been looking to offload the business for more than a year but have failed to find a buyer because of huge debts and a large pension deficit. Its chairman Don McCarthy, is understood to have secured exclusive talks with the French department store rival, which will expire by the end of January.
House of Fraser has also appointed Rothschild in the past few weeks to manage an IPO to see if there is any interest from institutional investors in a dual track process in the hope of increasing the price tag.
It is understood Mr McCarthy wants at least £450m and a handful of Middle Eastern investors are thought to be looking at the business should talks with Galeries Lafayette collapse.
The independent retail analyst Nick Bubb said Galeries Lafayette seemed like a natural fit to buy the company as it had made clear it wants a presence in London.
He added: "The chairman is a skilled negotiator and it is hard to tell if the news Galeries Lafayette is in exclusive talks with House of Fraser is a masterstroke or a desperate last throw of the dice, after all other solutions to the distressed balance sheet and shareholder base have failed."
House of Fraser had struggled previously to keep up with rival John Lewis, with underinvestment particularly in its online business. However, a major revamp of its Oxford Street flagship and its website saw sales up 0.8 per cent in the three months to the end of October, and a 31 per cent boost in internet sales.
Sports Direct and Newcastle United owner Mike Ashley looked at buying a minority stake in House of Fraser last year but is thought to have been put off by the £400m pension deficit, the refinancing required on its current debt and strict pre-emption rights held by the current owners over any possible sale.
Meanwhile, rival department store Debenhams saw its share price sink 3.55p to 78.45p after it was revealed the chief finance officer wrote to suppliers of its own brand products demanding a retrospective 2.5 per cent discount.
All outstanding payments would have the discount added, with Debenhams claiming the discount was right because of the "contribution" the suppliers received from the department store's investment plan and the extra customers it generates.
But some in the City were unconvinced and appeared to suggest the decision was because the company is struggling this Christmas – sales have started – with both HSBC and UBS downgrading the department store. Debenhams are not the first to demand discounts from suppliers. John Lewis and Laura Ashley have both written similar letters.
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