Debenhams looks set to become the subject of a bidding war between some of the biggest names in private equity following confirmation of the emergence of a second bidder for the UK department store chain.
In a statement to the London Stock Exchange this morning, Debenhams announced that it had granted access to its books to a second bidder, whilst confirming that talks were ongoing with Permira about the latter’s £1.5bn offer for the business.
Newspaper reports over the weekend identified the rival bidder as a consortium of CVC Capital Partners, US firm Texas Pacific Group (TPG) and John Lovering, the entrepreneur who recently tried to take over the Somerfield supermarket group.
The offer will need to exceed the 425 pence per share indicative offer submitted by Permira on May 12, which valued the store chain at £1.5bn. Debenhams was trading at 402 pence at the close of trading on Friday. This morning the share price has increased to 418 pence.
Permira has been working with Belinda Earl and Matthew Roberts, the incumbent chief executive and finance director respectively of Debenhams, on their bid – something that prompted some disquiet amongst institutional investors concerned that private equity firms were teaming up with managers of public companies to the detriment of existing shareholders. Although the non-executive board of Debenhams sought to reassure investors that that the two managers were not compromised in terms of maximising value of the company if sold, various practitioners have suggested that more precise rules should apply to public-to-private transactions involving existing management.
Permira has also said it will appoint Stuart Rose, former chief executive of the Arcadia fashion group, as non-executive chairman, and Charles Wilson, Rose’s assistant at Arcadia, as non-executive director. The firm is expected to decide on whether to proceed with its bid over the next three weeks.
According to the Sunday Times newspaper, Lovering and the CVC-TPG team are also working with Earl and Roberts. Both bidders have been given the same access to the company’s documents.
Interest in Debenhams has centred on the company’s extensive property portfolio. The portfolio, consisting of 102 stores, was last valuedin 1995 at £334m. Since then however, the value is thought to have increased significantly, with the CVC- TPG consortium valuing the portfolio now at over £600m. The property portfolio will be used to secure financing for the acquisition, with both parties currently in talks with bankers to provide debt for the deal.