UK-based private equity house Permira has launched the widely anticipated recommended 425 pence per share offer for UK department store chain Debenhams in a deal that values the business at £1.54bn.
Terms of the transaction, released this morning, reveal that Permira intends to take a 37.5 per cent stake in the business, investing from its recently launched Permira Europe III Fund.
Joining the firm in the bidding consortium are Goldman Sachs and Blackstone Group, which will invest from their GS Capital Partners 2000 and Blackstone Capital Partners IV funds respectively. Under the deal, both firms will take a 20.8 per cent stake in the business. A ten per cent stake has been allocated for existing management and senior employees of Debenhams, of which approximately 6.9 per cent has been set aside for the management team.
Also disclosed today were arrangements for the debt financing of the management buyout. Royal Bank of Scotland plc, Barclays Capital, Citigroup Global Markets and UBS have been mandated to arrange the debt package for the transaction, subject to the deal being declared unconditional. Permira, Blackstone and Goldman will provide around £500m of the capital for the takeover.
The 425 pence offer represents a premium of approximately 28.5 per cent to the closing price of 330.75 pence per Debenhams share on 9 May 2003, the last business day prior to the commencement of the offer period. Moreover, the offer is at a 50.8 per cent premium, the average closing price of 281.80 pence per Debenhams share during the six months prior to 9 May 2003.
“We are delighted that the independent directors of Debenhams have decided to recommend unanimously the offer, which is at a significant premium to the company's average share price over the last year”, said Permira partner Charles Sherwood.
Significantly, following confirmation of the recommended offer, Debenhams shares were today trading at 433 pence, a small premium to the Permira offer, but enough to suggest that investors are anticipating a superior bid to emerge. Texas Pacific and CVC Capital Partners are expected to announce an offer, although they are understood to yet have to carry out due diligence on the business.
The independent directors of Debenhams confirmed this morning that it has been agreed with CVC and TPG that if they notify the company prior to 30 September 2003 that they no longer wish to proceed with a possible offer for Debenhams at above 425 pence, Debenhams will pay to them a fee of up to £6m. Debenhams also said it will pay the Permira consortium a break fee of up to £8.5m if the CVC group emerges with a successful, higher offer.
CVC and TPG are working with John Lovering, former chairman of Homebase, which was sold by Permira to GUS in November last year. Stuart Rose, the former chief executive of Arcadia, is expected to become non-executive chairman of Debenhams if Permira’s bid is successful.