Kingfisher investors to back £3.2bn French bid

Shareholders in Kingfisher will meet today to vote on its controversial plan to buy the 45 per cent of the French do-it-yourself retailer Castorama it does not already own.

The meeting should run smoothly with investors in Kingfisher expected to back the deal and a related £2bn rights issue.

The success of the purchase, however, hinges on a valuation of Castorama to be made by an independent arbiter, Rothschild et Cie, the French merchant bank, that is due by 7 July.

Lawyers for Castorama and the British DIY and electrical goods retail group yesterday signed the mandate formally appointing Rothschild as independent judge of the fairness of Kingfisher's £3.2bn bid.

A source close to Rothschild said the bank would earn €7.5m – with half the sum paid by each company – as referee of the €67-a-share offer. Its role is crucial to the outcome because of a 1998 agreement struck when Kingfisher bought 55 per cent of Castorama. That deal called for outside arbitration of any future offer Kingfisher made for the remaining shares.

The bank must present a certificate valuing the Castorama stake at a specific, minimum price rather than giving a range. The deal will proceed if Rothschild rules Kingfisher's offer is fair value even if other Castorama shareholders disapprove of the price. But if the bank rules Castorama shares are worth more, Kingfisher will have three months to decide whether to pay the higher price set by Rothschild or walk away.

Kingfisher and Castorama will be able to lobby Rothschild before it rules on the value of the stake. They will also see a confidential draft report a week ahead of the final deadline and can comment on it.

Castorama's chief executive, Jean-Hugues Loyez, extended his attack on Kingfisher by taking out advertisements in French newspapers yesterday criticising the offer as inadequate. Kingfisher again insisted that €67-a-share was a fair price.