DFS founder lifts stakes for buyback

AN increased bid for furniture retailer DFS by company founder Lord Kirkham has left a gap of just £3m between what the Tory peer is offering to take the company private and what independent directors are prepared to put to shareholders.

Details of the new bid, which have been obtained by Financial Mail, show an increase on the 415p a share signalled by the 59-year-old sofa magnate in early March when he first said he wanted to buy back the company. The original offer valued DFS at £445m.

At a meeting this month with DFS's non-executive directors and their advisers Citigroup, Kirkham said he would:

Pay 425p a share - an increase of 10p on his original indicative bid.

Allow shareholders to keep the promised interim dividend of 7p a share.

Give existing shareholders the rights to at least part of a hopedfor VAT rebate the company believes it is due.

But the package - 432p a share plus a projected 10p a share from the VAT cash - was rejected and further talks between Kirkham and the company's advisers broke up last week without agreement.

Citigroup, which is advising DFS, is reluctant to ask shareholders to consider anything less than 435p plus the VAT money making 445p in all.

A number of institutional investors have set their target higher - they want at least 450p in total. Kirkham has indicated that he is not prepared to increase his bid any further. DFS's independent directors are now considering whether to give the go-ahead for Nomura, Kirkham's financial backer, to carry out 'due diligence' investigations of the company's books without committing themselves to acceptance of an offer.

The scale of any VAT rebate is a huge unknown in the negotiations. Sorting out the VAT wrangle may take years. If DFS won on every count, the company could reap nearly £50 million. Of that, the company already feels confident that it will get £14 million - which accounts for the 10p a share net of tax being offered as part of the Kirkham deal. There is greater uncertainty about the balance of the £50m.

Last week, Kirkham announced results for the half year to the end of January. He warned that DFS's full-year profits were likely to be little more than £50m - at the bottom end of City forecasts.