The wisdom of crowds

4 June 2009 By John Foley Follow @johnsfoley

The UK retailer is avoiding a straightforward rights issue by offering £323m of shares to all comers and then letting existing holders claw some back. The markets are disjointed. Underwriters are scarce and strategic shareholders are shy, but institutions are happy to buy.

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Debenhams, the UK department store chain, said it would raise £323m through the sale of new shares in order to reduce its debt ratios, tweak the terms of outstanding loans and build a warchest for strategic acquisitions or debt buybacks. The shares would be placed with investors through a bookbuild process, and existing shareholders could claw back 60% of the offer, or £193m.

Separately, Debenhams said that samestore sales had fallen 0.8% in the twelve weeks going up to May 23, while gross transaction value rose 3%. Net debt was £971m, compared to a market capitalisation of £815m based on the closing share price on June 3. Analysts forecast Debenhams will make £274m of ebitda in the year ending August 2009, according to Reuters Knowledge.

CVC and TPG, the private equity firms who helped take Debenhams private and refloat it in 2006, would not contribute to the capital raising, and would thus see their combined stake fall from 21% to 15%. Some unnamed Debenhams directors did not plan to put in new money. The capital raising was arranged by Lazard, with Citi and Merrill Lynch acting as placing agents.

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