Kirkham raises offer for DFS

THE deadlock over the ownership of DFS is likely to be broken. Executive chairman Lord Kirkham and advisers to the furniture chain he founded are edging close to a deal that would see the Tory peer take the group back into private hands for more than £460 million.

Kirkham, 59, announced last month that he was considering a bid for DFS at 415p a share.

The three non-executive directors - Mike Blackburn, Malcolm Walker and Kevin Morley - said the offer was too low. Institutional shareholders indicated that they would only consider an offer of 450p or above.

Now, Kirkham has told the DFS directors and their Citigroup advisers that he would be prepared to increase his offer to 430p-435p a share, according to sources close to the negotiations.

That has also been rejected. But advisers believe they may be able to break the impasse by promising that if shareholders accept a bid from Kirkham now, they will also qualify for a possible payout later. The extra money would come from settling a series of long-running legal cases involving VAT owed by DFS.

The sum at stake could be as much as £50 million, equivalent to more than 45p a share. This dispute is unlikely to be resolved soon, but could lead to DFS recouping tens of millions of pounds from Customs & Excise.

Advisers to Kirkham, who with his family holds about 10% of DFS's equity, accept that other shareholders will expect to receive the lion's share.

Bankers are now looking for a tax-efficient plan to clear the way for an agreed bid by Kirkham that will leave DFS shareholders with a claim on the VAT rebate if it is secured.

A bid at 435p would value DFS at about £467 million. It is not clear whether Kirkham's latest indicative offer includes DFS's expected interim dividend of 7p a share.

Kirkham founded DFS 35 years ago and floated it in 1993. When he signalled his plan to buy it back earlier this year, he said that as a private company, DFS could better cope with fierce competition, using price cuts to fend off rivals, even if that hit short-term profits. On Thursday,

DFS is due to report figures for the six months to the end of January.

Analysts expect profits of £24m.