Kirkham's £496m DFS bid faces growing opposition

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The Independent Online

Lord Kirkham's £496m bid to take his DFS Furniture empire private may be scuppered by mounting anger from shareholders who are unhappy with the price and terms of his offer.

Shareholders received a 112-page document yesterday outlining his 445p a share bid, which gave details of pay rises and service contracts for senior management that will create further resentment towards the offer.

It is understood that some major shareholders are preparing to vote against it. The bid has been tabled as a scheme of arrangement, which means it needs the support of 75 per cent of shareholders. A number of sources close to the deal strongly believe it will be blocked.

With the deal on a knife-edge, DFS is meeting shareholders over the coming weeks. It will also have to explain pay rises of 10 per cent for Lord Kirkham, John Massey, the chief operating officer, and Bill Barnes, the finance director. Their pay has risen to £495,000, £198,000 and £165,000 respectively from July. Mr Massey and Mr Barnes are staying to run the company after the buyout.

The non-executive directors of DFS recommended the bid, but serious questions are also being raised over their independence. The offer document yesterday revealed that Michael Blackburn, who is the senior independent, non-executive director at DFS, is employed on a consultancy basis by DFS, and would be entitled to a six-month pay-off if his contract was broken. "It is highly unusual for non-executives to be employed on this basis. It does make you wonder how independent he has been," one source close to the company said yesterday.

Also under scrutiny by shareholders will be the settlement of a court case with Customs & Excise over VAT liabilities. The offer document has revealed that of £14.6m owed to DFS, Customs & Excise has paid only £7.8m. This £14.6m forms a crucial part of Lord Kirkham's offer, amounting to 10p of the 445p a share bid. A spokeswoman for Lord Kirkham said yesterday that the 10p per share payout was not under threat, but shareholders will want further assurances.

Shareholders have until 7 September to decide and while most are disappointed with the price, many are unwilling to let it pass without an alternative on the table.

But with opposition growing, DFS may be forced to drop its plans for a scheme of arrangement and table a tender offer instead. The risk for Lord Kirkham, however, is that rebel shareholders could cling on to their shares.