Troubled Woolworths set to cut flotation price to £300m

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The Independent Online

Woolworths could be valued at less than £300m when it floats on the stock market today, the company admitted, as negative sentiment had forced it to list at a rock-bottom price.

That would mean the equity value of the confectionery and toys retailer would be less than the price Kingfisher, the parent group, paid for it in 1982.

Sources at Woolworths said its shares were expected to be priced in the range indicated by the unofficial "grey market", which yesterday showed a value of just 20p to 25p a share or £280m to £350m.

The group's brokers will decide today the level at which the shares will start trading. Tullett & Tokyo Liberty, an independent broker, was yesterday pricing Woolworths at only 20.25p to 21.5p a share.

Just a month ago, Sir Geoff Mulcahy, Kingfisher's chief executive, suggested Woolworths would be worth 30p to 40p a share, or £400m to £550m. This was echoed by the house broker, UBS Warburg. Kingfisher originally bought it for £310m.

Gerald Corbett, the executive chairman of Woolworths, declined to discuss the specific valuation of the group but said: "There will be technical factors at work. It may turn out to be a tremendous opportunity for investors to get into a turnaround story."

Even at a low opening price, Woolworths' shares are likely to come under technical pressure. Overseas investors and tracker funds, which bought into Kingfisher because of its FTSE 100 ranking, will offload unwanted shares in Woolworths which will be in the FTSE 250.

Mr Corbett said the short-term priority at Woolworths was to tackle its overstocking situation.

It is believed the company has halved the £100m of spare stock – at cost price – it was left with last Christmas, after overly ambitious sales forecasts were not met. Woolworths hopes to dispose of the rest of this stock, through discount sales and promotions, by the end of the year.

"[Tuesday] is a big day," Mr Corbett said. "One of Britain's greatest companies is independent again."

Woolworths also plans to close its e-commerce operations and slow down the opening of new format shops. This should save about £30m a year.

Analysts have said that Woolworths was neglected in the last years of ownership by Kingfisher, with stock levels and costs allowed to go out of control, leading to a collapse in profits.

Mr Corbett believes the imposition of basic retailing disciplines, exploitation of the famous brand and its status as number one toys and sweets retailer can lead to a turnaround in the fortunes of Woolworths.

If he pulls it off, it will prove a richly rewarding experience. Mr Corbett is due a £500,000 bonus for successfully demerging Woolworths. He has a basic salary of £375,000 a year, plus £65,000 in lieu of not having a company pension. Finally, he could earn a bonus of 50 per cent of salary or £187,500 if he meets certain performance targets.

Although Woolworths' valuation is disappointing, Kingfisher has loaded it with £200m of debt and raised hundreds of millions of pounds over the years by selling off Woolworths properties.