Merrill Lynch sells Debenhams stake

The private equity arm of the US bank has sold its remaining stake in the UK retail company, which has declined in value on the public markets, despite being the most lucrative UK buyout ever at the time of flotation.

Merrill Lynch Private Equity (MLPE) has sold its remaining stake in UK retailer Debenhams at less than a third of its initial public offering price.

profitable for
buyout firms

The sale of 47 million shares, or a 6.2 percent stake, to institutional investors at £0.60 ($1.20; €0.76) per share has raised around £30 million for the private equity unit of the investment bank, according to Merrill Lynch’s spokesman.

The sale caused Debenhams’ share price to drop 14.7 percent to £0.61 per share at 1253 GMT today giving it a market capitalisation of £524 million.

MLPE took the company public, alongside TPG Capital and CVC Capital Partners, at £1.95 per share in May 2006 with a market capitalisation of £1.68 million. Merrill Lynch’s spokesman said at the time of the sale it had a 19.4 percent stake in the company, which went down to 8.7 percent. It subsequently sold down its stake slightly to the present level at which it is divesting.

Last year the three firms stepped down from their places on the board of Debenhams, allowing them to divest as ordinary shareholders.

According to a source close to Debenhams, TPG’s stake stands at 13 percent and CVC’s at 9 percent. The two firms have not sold their stakes alongside Merrill Lynch.

CVC, TPG and MLPE invested £600 million of equity in the May 2004 £1.9 billion take-private of Debenhams. The firms returned around £1.3 billion to shareholders through two recapitalisations during their ownership, a source told PEO at the time of the IPO. The deal became the most lucrative UK buyout ever at that time.

The company’s share price hit a low of £0.53 per share this month and it has reported sales declines on several occasions since the initial public offering. This decline has been partially arrested, according to its latest trading figures published last week, with sales at stores open for at least a year only falling by 0.7 percent, while sales for the 26 weeks ended 1 March 2008 were 1.2 percent higher. This caused its share price to rise to above £0.70 per share.