Twin-track plan for Woolies sends demerger costs surging to £20m

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The costs of separating Woolworths and Superdrug from the rest of the group soared because Sir Geoff Mulcahy, Kingfisher's chief executive, followed a twin-track strategy of looking to sell the divisions at the same time as preparing to provide them with their own stock market listing.

The advisory team on the complex transaction was led by the investment banks UBS Warburg and Credit Suisse First Boston. While Warburg led the broad demerger process, CSFB concentrated on a series of property transactions that went with the plan.

Over the weekend, CSFB was working to complete a sale-and-leaseback of 180 of Woolworths' 800 stores, in time for the deal to be announced with the listing particulars for Woolworths tomorrow. The bank was in final negotiations with London & Regional, a property company owned by Ian and Richard Livingstone.

Kingfisher is likely to argue that the cost of the demerger process will be dwarfed by the £1.3bn that is to be raised. An insider said: "You've got to see it in the context of the shareholder value created."

Some £310m will come from the sale of Superdrug and its associated property. There is £600m due from the Woolworths property deal, and £200m of debt will be off-loaded onto Woolworths. Finally, a separate group of properties owned by Kingfisher, but not occupied by its operating companies, is to be sold for some £200m.

The listing particulars will include a figure for the advisers' fees and the other costs associated with these deals, such as stamp duty. Sir Geoff Mulcahy, the chief executive of Kingfisher, tried and failed to sell Woolworths to a trade or financial buyer, but succeeded with Superdrug. The Woolworths listing is seen by him as the second-best option, insiders said.

The demerger has not been smooth. Sir Geoff had given out conflicting signals on whether Woolworths would be sold or demerged, and he fell out with Gerald Corbett, who had been appointed to chair Woolworths.

The Woolworths board that will be announced tomorrow will exclude Jonathan Fry, the former chairman of Burmah Castrol. Mr Fry was promised a non-executive position but the offer was withdrawn when he publicly backed Mr Corbett in his row with Sir Geoff.

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