Debenhams – a tale of our time to remember
For decades to come, Debenhams (LON:DEB) will be a business school case study. It is also the story of the 21st century boom and bust - bought by private equity, loaded with debt, floated expensively, shunned, an Icelandic target, forced to raise new capital – and now the private-equity funds have exited.
Debenhams is a department store chain with a long history. Debenhams & Freebody was one of London’s great Oxford Street stores. Fifty years ago, in 1959, it bid for Harrods but lost to the rival House of Fraser. In the 1980s, Sir Ralph Halpern’s aggressive Burton Group bought the chain.
The company had just £100m of debt when it was taken over in 2003 by private-equity funds CVC Capital and Texas Pacific Group, TPG. The buyers refinanced the balance sheet however, loading it with nearly £2bn of borrowings and taking out almost £1bn for themselves.
The financing banks – HBoS, Royal Bank of Scotland, Lloyds – say much about the decade too.
Then after just three years CVC and TPG refloated the company, trebling the value of their equity. But having sold cheaply, City institutions such as pension funds had no wish to buy back the same company expensively and shunned the issue.
Debenhams’ shares plunged from the flotation price of 195p to just 25p and Bauger, the Icelandic retail group mopping up UK investments, stepped it to take an option on the stores chain.
In June 2009, with Debenhams still £1bn in debt, it asked shareholders to inject another £323m of capital through a rights issue. The private-equity partners shunned the recapitalisation and have now followed through by selling the remainder of their shares. First CVC sold, now TPG has pocketed almost another £100m, taking its proceeds to £500m, by selling out at 82p a share.
For years to come financiers will talk of the “Debenhams effect” – to describe the quick flip from public to private-equity and back to public with the refusal to buy back what was sold cheaply. City institutions have only themselves to blame however: had they sold at the top instead of the bottom they would be laughing.
But if anyone needs reminding in future years what went wrong in the first decade of this century, the Debenhams saga says it all.
