One of Debenhams’ largest shareholders has exited the company nearly £500m richer, it emerged today.
Private equity firm Texas Pacific Group (TPG) – which along with CVC Capital Partners and Merrill Lynch controversially took the retailer private in 2003 and saddled it with a huge debt burden before refloating it in 2006 – sold its entire 9.34% shareholding to a single institutional investor yesterday.
The new owner has yet to be identified, but is expected to be named within days to comply with stock market rules.
TPG is understood to have pocketed about £500m in the six years since investing in the department store chain. This is net of its initial investment, thought to be £200m.
The windfall includes its share of profits made by the three investors after a refinancing that left Debenhams with £1.9bn in debts just two years after it was taken private. The flotation and other shareholder benefits also grew its takings.
TPG added to this with around £98m from the sale of its remaining stake yesterday.
Debenhams’ debt woes – it still owed more than £1bn following flotation – came to epitomise critics’ fears over private equity involvement, as the trio of investors hugely increased their profits having sold off freehold property and cut costs.
The “Debenhams effect” has since been blamed for dampening investor interest in private equity-owned businesses.
Debenhams, which owed just £128m before it was bought in 2003, has fought to emerge from the shadow of its debts and launched a fundraising earlier this year to help reduce them.
The department store chain said recently that the share issue had helped it cut net debt by £403.7m to £590.3m.
Neither CVC or TPG subscribed to the fundraising, forfeiting their representatives on the firm’s board.
TPG’s stake was reduced from 13% in the move, which prompted its departure from the firm yesterday.
CVC is thought to have sold most of its shares at the time of the share placing, while Merrill Lynch sold its stake last year.
Debenhams shares have had a turbulent time since the firm emerged from private ownership.
Shareholders saw their investments crumble as the share price tumbled to a low of 20.5p last year – around a tenth of the original asking price amid recession fears and concerns over the group’s debt burden.
But the recent picture has been sunnier, with the share price recovering and recent figures showing the firm delivered a 14% rise in annual profits.
Sales of it “Designers at Debenhams” range, which includes items by designers such as Jeff Banks, have performed particularly well.
