Somerfield makes second desperate price cut

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The Independent Online
The ill-starred flotation of the Somerfield supermarket group finally looked set to go ahead last night after the price of the issue was dramatically cut for the second time in a week. The price was reduced from 160p to 145p to help satisfy institutional investors nervous about the jittery stock markets.

At that price the company is valued at pounds 430m compared with pounds 548m at the original valuation of around 185p. "We were going to get this thing away, no matter what it took," one insider said.

Though an official announcement is not expected until this morning, it is thought that the offer will be fully subscribed. Barring last-minute hitches the shares are expected to start dealings a week later than planned on 9 August.

Kleinwort Benson will not underwrite the offer until today. The revised offer was also conditional on a board meeting last night of the Isosceles parent company which represents the company's debt-holders

Yesterday's price cut was the final act in an increasingly frantic attempt by the company's advisers to help get the troubled float away. It is understood that the brokers found that not only were orders not coming in but existing orders were being pulled due to worries about stock market turbulence.

Only institutions which had already applied for the shares were offered the lower price. It is thought that most of the shares have ended up with just half-a-dozen funds including UBS asset management.

The second price cut also again reduces the bonuses that are scheduled to be paid to the Somerfield board. That total will now be cut from more than pounds 9m to around pounds 8m. Chief executive David Simons is in line for pounds 3m compared with the original pounds 5m, though he will be investing pounds 1.6m of the net total in the company's shares.

The second price cut puts Somerfield shares on a prospective price-earnings ratio of just five with a yield of almost nine. At these ratings the float has gained some fans in the City.

"You have to say that at that price, it's pretty OK," one analyst said. He added that other companies' ratings such as Kwik Save now looked far to high.

Somerfield, which is the former Gateway supermarkets business, is the largest non-privatisation issue of the year and has been by far the most troubled. It has been dogged by misfortune since the outset by stock market gyrations followed by a profits warning from Iceland, the frozen food retailer, which precipitated the first price cut.

The retail offer to private shareholders closed on Friday though the company has not released details on the volume of take-up. Private investors will also be eligible for the lower 145p price. Some analysts expect that if the float does go ahead as expected the shares will open at a premium close to the previous price of 160p.