Debenhams looks to Europe for partner

Department store chain Debenhams has approached a number of continental retailers about the possibility of a merger, it was reported today.

The group, which has seen its share price dive by a third since it was floated just over a year ago, is understood to have talked to Germany’s KarstadtQuelle, one of Europe’s leading mail order and department store businesses.

Today’s report in the Sunday Times also linked Debenhams to Galeries Lafayette of France, which runs 63 stores including operations in Paris and Berlin, Italian store chain Rinascente and German retailer Galeria Kaufhof.

No-one at Debenhams was available for comment.

Rob Templeman, the Debenhams chief executive, is reportedly keen to find an exit for the business after a series of profits warnings and a struggle against a difficult retail environment. It has been losing market share to the likes of John Lewis and Marks & Spencer.

Tentative discussions are believed to have already taken place with Thomas Middlehoff, chief executive of KarstadtQuelle. The German business changed its name to Arcandor today, reflecting a range of activities that also includes 52% ownership of new MyTravel owner Thomas Cook.

Founded in 1881, company has 90 department stores and 32 sporting goods outlets. Dr Middlehoff indicated last month that he wanted to list his group’s shares in London as he believed investors in Frankfurt did not fully value his business.

Today’s newspaper report indicated that a tie-up with a continental partner was one of a number of strategic options being explored by Mr Templeman.

The group recently reported pre-tax profits of £105.5m (€156.4m) for the six months to March 3, a rise of 34.4%, but said it did not expect to meet market expectations in terms of the full-year profits performance.

Debenhams said it hoped better in-store service and more contemporary presentation would drive an improvement later in the calendar year. It was hopeful that a programme of store refits could boost prospects.

The chain, which operates from around 130 stores, has an own-brand portfolio including labels such as Debut, Maine New England and Thomas Nash, plus 25 Designers At Debenhams brands offering product lines from the likes of Jasper Conran and Julien Macdonald. It achieves around 60% of its sales from clothing.

Texas Pacific Group, CVC and Merrill Lynch Private Equity invested £600m (€889m) of equity to acquire Debenhams in 2003, before trebling their investment in three years after selling off freehold property and cutting costs.

The retail business returned to the stock market last year, but Debenhams was left with £1bn (€1.48bn) of debt.