2nd UPDATE: Debenhams Raises GBP323 Million In Share Offer To Cut Debt

U.K. department store chain Debenhams PLC (DEB.LN) said Thursday it raised GBP323 million in a share sale to cut debt and acquire funds for possible acquisitions, and voiced optimism about its trading prospects for the year.

The debt-burdened retailer said it raised the money by selling a total of 404.4 million new ordinary shares at the issue price of 80 pence each, representing a 13.3% discount to Wednesday's closing price.

Buyout groups TPG and CVC Capital Partners, which retained stakes in the company following its flotation, backed the capital increase and have agreed not to sell their stakes during the offer period. However, CVC, which had a stake of around 8.4%, according to FactSet, has cut its stake significantly selling over half its 84 million shares in the placing.

TPG hasn't sold any shares in the placing and retains its stake which was 12.8% stake before the placing, a person familiar with the situation said.

Both firms have given up their board seats in anticipation of the dilution caused by the placing which will disqualify them from membership, Debenhams said.

It is uncertain whether CVC and TPG will remain longterm shareholders in the retailer, people familiar with the situation said.

TPG and CVC floated Debenhams in 2006, less than three years after taking it private and having loaded it with debt which now reportedly stands at around GBP900 million.

Merrill Lynch Global Private Equity, a third investor in the company sold its stake at 60 pence a share in March 2008, receiving proceeds of GBP28.4 million.

The Times said Thursday that institutional investors have been angered by the company's falling share price. It said TPG and CVC plan to sell down their stakes.

Still, while announced plans for its share placing Debenhams said it's still confident it can boost profitability this year, despite tough business conditions..

It said that proceeds will be used to reduce net debt and to allow the group to refinance in future. It said it will be able to amend debt covenants and that the new capital will increase its ability to buy back existing debt below par if such an opportunity arises.

The retailer also said that the cash will allow the group to acquire retail assets that might become available if the economic downturn persists.

Meanwhile, in the 12 weeks to May 23, Debenhams said sales were up 3% from the same period last year and that it had made gains in gross margin, contributing to year-on-year growth of pretax profit and earnings before interest, taxes, depreciation and amortization.

It also said it has gained total fashion market share, according to TNS Worldpanel Fashion market share data for the 26 weeks to April 26.

The group said that while the current trading environment remains challenging, consumer spending should recover over the medium-to-long term and there are strong drivers for the company's continued growth.

"I believe that our trading for the year to date is a robust performance given the challenging nature of the market," Templeman said in a statement. He said the capital hike will give Debenhams "operational and financial flexibility" for the future.

Singer Capital Markets said in a note that sales and the increase in gross margin were well ahead of its conservative assumptions, and that this could trigger some upgrades.

Moreover, Singer said the "much anticipated" fund raising was about GBP125 million higher than would be required to merely address the debt situation and should provide Debenhams with "ammunition for any opportunities" in trading or for acquisitions in the downturn. Singer has a buy rating and 95 pence price target on stock.

Shares closed down 2.4% or 2 pence at 90 pence.

Of the new shares, 40% will be placed in a firm offer to investors, while 60% can be clawed back by existing shareholders if they wish.

Citi and Merrill Lynch International are acting as joint sponsors and joint bookrunners, Lazard is acting as financial adviser and joint sponsor to the Company.

Company Web site: http://www.debenhamsplc.com

-By Ragnhild Kjetland and Marietta Cauchi; Dow Jones Newswires; +44 207 842 9268; ragnhild.kjetland@dowjones.com

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