Debenhams, which runs 102 stores, including shops in Dublin and Belfast and a planned Cork outlet selling mainly clothing and homewares, has attracted the attention of two private equity groups, one of which has indicated an offer price of about £1.54 billion.
The retailer said talks are continuing with both. Head of retail equities, Mike Felton, at ISIS fund managers, which owns 2.5% of the company’s shares said: “I don’t want to feel as though the company is being given away. I think we would be disappointed with 425p. The business is performing very well; we still believe in its growth prospects.”
That view was echoed by David Cummings, head of British equities at Standard Life Investments, which has a 4.9% stake.
“Our view is that 425p is too low,” he said.
Shares improved seven pence or 1.7% to 424p compared with 330p before the first bid approach. Permira has yet to launch its bid, but is expected to make a formal offer by the end of the month. Debenhams confirmed yesterday that the second approach, announced last month, came from CVC Capital Partners joined by Texas Pacific Group.
Permira’s approach in May was shrouded in controversy as Debenhams chief executive Belinda Earl and finance director Matthew Roberts helped the firm formulate its bid. They plan to stay on and take an equity stake if it succeeds, which will also trigger cash and share payouts for the pair. They are now also helping the rival bid group and a committee of non-executive directors have been appointed to consider any offer. In the meantime, Debenhams picked out womenswear in particular for an improvement in sales and profit margins in its second half. Warmer weather and a summer sale helped same store sales growth of 3.8% in the 20 weeks to July 19 accelerate to 5% in the last 10 weeks of that period.
Gross profit margin improved 0.6% percentage points over the 20-week period, recapturing lost margin from a year ago when mistakes were made and prices had to be slashed to shift stock.
“Debenhams continues to trade well and in line with our expectations,” CEO Earl said in a statement.
Britain’s biggest clothes seller M&S last week reported 2.8% growth in non-food sales for the 15 weeks ended July 12.
Clothing contributes around half of Debenhams’ turnover. The retailer sells own label merchandise like Hyphen and Maine New England alongside an exclusive designer range and has a track record of outperformance with its multi-brand approach.
“It’s a good performance given the current market and what we’ve seen from M&S,” said retail analyst John Baillie at SG Securities, saying a bid price of 425p was “looking a little cheap now.”
Analysts at SG Securities, Seymour Pierce and Evolution Beeson Gregory all think 450p a fairer takeover price and Williams de Broe thinks anything below that “would be a steal.”
Analysts forecast profits growth of about 8% this year and next.
Total sales for the 20-week period climbed 7.8%.
Debenhams is being advised by investment bank Greenhill.