Somerfield gets a cool welcome

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Somerfield has received a lukewarm response from potential investors ahead of the publication of its results on Monday and a pathfinder prospectus later next week.

One analyst said the pounds 500m float had only "an even money" chance of getting away while a leading City fund manager said the company's bankers were "becoming nervous" about its prospects. It is possible that the flotation would be pulled if the pricing fell below a certain level.

The adverse reaction follows admissions by the company that the new issues market has become more difficult in recent weeks. "There have been a lot of flotations and there is a bit of indigestion out there," one source close to the company said. One analyst said: "From what I hear, the institutions aren't that interested."

There have been a number of recent new issues which have been priced at the upper end of expectations and then proved a disappointment. One example is Jarvis Hotels which came to the market last month priced at 175p. Yesterday the shares closed at 172p.

Somerfield chief executive David Simons said the feedback from City investors had been positive. Tony MacNeary of NatWest Securities, which is broker to the issue, said that "more than half of institutions were favourably disposed towards the float with the obvious caveat of the price."

City doubts about the flotation coincide with rumours that the company's backers have prepared contingency plans should the float fail. This would see backers swap their debt for equity, followed by a rights issue that would raise around pounds 50m which would be injected into Somerfield. The company said it had no knowledge of such a plan.

Somerfield, which was born out of the disastrous Isosceles buyout in the late 1980s, has struggled to throw off the dead weight of its past. It has been changing its stores to the Somerfield format, though a third of the chain still trade under the old Gateway name where sales are weak.

Somerfield is the biggest non-privatisation float of the year with 20 per cent of the shares being offered to private investors.

David Simons and four other directors stand to receive a bonus of pounds 5m as a result of the flotation, though Mr Simons has said he will invest the bulk of his entitlement in Somerfield shares.