LONDON — The rival bid for Debenhams finally arrived on Friday and, while sweeter than its predecessor, it left investors hungry for more.
CVC Capital Partners and Texas Pacific Group, through a new firm dubbed Baroness Retail, tendered a widely anticipated joint bid for the U.K. department store chain, at a premium of 7.1 percent to rival Permira’s offer. Just as the Permira bid has failed to inspire selling by current shareholders, several major shareholders considered the higher offer still insufficient.
The cash bid of $7.32 a share values Debenhams at $2.68 billion, trumps Permira’s $6.84 a share bid and sets the stage for the potentially lucrative takeover war for which shareholders have been hoping.
Dollar figures have been converted from the pound at current exchange as CVC/TPG bid 4.55 pounds for Debenhams versus Permira’s extent 4.25 pound bid.
Debenhams shares closed Friday at $7.39, up 5.4 percent from the previous day.
A statement issued Friday by CVC/TPG said Debenhams’ independent directors plan to recommend the bid unanimously, subject to withdrawal of their acceptances of Permira’s offer. “The independent directors consider that the offer is in the best interests of Debenhams and its shareholders,” the statement said, referring to the CVC/TPG bid.
CVC and TPG have been advised by Morgan Stanley.
Friday’s offer represents a premium of 37.6 percent to the $5.31 closing price of Debenhams on May 6, the last business day prior to the beginning of the Debenhams bidding period. It also represents a premium of 61.5 percent to the $4.52 average closing price during the six months up to and including May 9.
“Debenhams is one of the U.K.’s great retail companies with strong operating performance and a leading market position,” said John Lovering, who would become chairman of Debenhams if and when a purchase by CVC and TPG is consummated. “We believe there is a wealth of management expertise and experience in the business and we are excited about the company’s future.”
Lovering is a U.K.-based retail entrepreneur who tried, and failed, to buy the supermarket chain, Somerfield, earlier this year. He also has had numerous experiences chairing private equity-backed businesses in the U.K., including Homebase Ltd. and Fired Earth.
A spokesman for Permira, a private equity fund, said Friday, “We’ve acknowledged the new bid and are examining it in depth. We’re looking examining it in depth. We’re looking to see whether we can come up with a rival offer.”
Permira now has a maximum of 60 days to launch a counter offer for Debenhams. Industry sources say the company is already at work on a new bid.
However, if the CVC/TPG bid is successful, Debenhams will pay Permira a “break fee,” known in the U.S. as a breakup fee, of $13.7 million.
In July, Permira unveiled its bid, valuing Debenhams at approximately $2.48 billion, but the company has so far failed to ignite shareholder interest. Many institutional shareholders believed the bid undervalued the company, and were eagerly awaiting a rival offer.
As reported earlier this week, Permira’s second closing date for Debenhams shareholders to sell their stock came and went without any fanfare. So far, Permira has managed to secure a grand total of 4.8 percent of shares from the public. Its third closing date would have been Sept. 23, but now that a new bid is in place, that date is no longer valid.
Permira is working with Debenhams chief executive Belinda Earl and her team on a management buyout. Permira was planning to take the store off the stock exchange and run it as a private company, with management’s blessing.
CVC, a pan-European private equity group, and TPG, which specializes in both private and public investments, said Friday that they, too, planned to delist Debenhams if and when its offer becomes unconditional.
While CVC/TPG’s bid may be more financially appealing than Permira’s, shareholders say they plan to continue their waiting game. “The latest offer doesn’t look that punchy to us, so we’re not selling our shares,” said Rupert Trotter, consumer analyst at Isis Asset Management, which holds a stake in Debenhams. “A 7.1 percent premium is not a significant increase in price. Frankly, we think the shares can reach 4.75 pounds [$7.65] or 5 pounds [$8.05] without any trouble.”
Trotter said the plot will thicken if and when Permira comes back with a counteroffer. “Permira has done its due diligence. They know the company better than anyone, and I cannot believe they’re going to walk away.” He said Isis, an institutional shareholder, is holding out for at least another 40 cents a share, which would lift the offer to $7.72.
William Claxton Smith, director of U.K. equities at Insight Investments, which has a 1.4 percent stake in Debenhams, is in no hurry to sell, either. “I am pleased to see a higher bid, but we’re not selling our shares. We’re going to wait and see if the other side comes back with a counterbid.”
Isabelle Payet, an analyst at brokerage E Trade Securities in London, said Permira could probably land Debenhams for about $7.49 a share. “That should do the trick,” she said, adding that it was probably too late for additional bidders to emerge.
“The battle is now going to be between Permira and CVC/TPG. Timewise, they have too much of an advantage over anyone else out there,” she said.
As reported, in the second half, Debenhams, disclosing only comparisons and not amounts, said sales were up 7.9 percent, with comparable-store sales rising 3.9 percent.