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Chinese sign deal to buy House of Fraser for £480m

After two weeks of speculation, Nanjing Xinjiekou Department Store Co (“Nanjing Cenbest”), a subsidiary of Sanpower Group, and a leading chain of luxury Chinese department stores, today confirmed it has signed a definitive agreement to acquire approximately 89% of Highland Group Holdings, the parent company of House of Fraser.

According to the Chinese statement, “the offer price implies an enterprise value of approximately £480 million. The acquisition is expected to close in approximately four months and is subject to customary closing conditions including the approval of Nanjing Cenbest shareholders and Chinese regulatory clearances.”

Nanjing says this is the largest overseas retail purchase by a Chinese firm. The figure of £480m is presumed to include HoF’s debt and at least an element of its pension deficit.

Don McCarthy, executive chairman of House of Fraser, who brokered the surprise deal, commented: “Our announcement today opens an extremely exciting chapter in the story of House of Fraser. The acquisition by Nanjing Cenbest will allow House of Fraser’s management team to continue to grow and invest in the business in the UK and Ireland, provide a strong platform from which to expand the brand in international markets and to further develop our multichannel, stores and premium fashion offering.

“Since we took the company private in 2006, (HoF CEO) John King and his team have done a fantastic job of growing the business in what can only be described as a difficult retail and economic environment. I would like to thank the management team, our brand partners and all House of Fraser employees for their hard work and support over the years. This transaction also ends our plans to list on the London Stock Exchange and I would like to thank our advisors, Rothschild, HSBC and Numis, for their support during this process. I am extremely confident that the group’s business model, with our premium brand positioning and strong multichannel operations, as well as international opportunities, will accelerate and develop long into the future.”

Yuan Yafei, chairman of Sanpower Group, the largest shareholder of Nanjing Cenbest, said: “This acquisition is a landmark transaction for a Chinese listed company. House of Fraser is a strong and iconic heritage brand in the UK and abroad, with exceptional fashion credentials. The management team has done an incredible job moving this business from a traditional department store to a recognised premium branded fashion retailer with a first-class multichannel offering. We have always been looking to invest in strong brands like House of Fraser, and take them to the next level of growth. With House of Fraser, we see significant opportunities to develop the business further and replicate the already successful model in international markets, in particular in China. We are very much looking forward to working closely with John King and his management team to enhance the business and unlock House of Fraser’s potential to become a leading global brand. To date, this is the largest cross-border direct acquisition by a Chinese non-state-owned A-share listed company, and the largest overseas acquisition in the retail sector by a Chinese business.”

John King, chief executive of House of Fraser, commented: “House of Fraser has delivered strong growth driven by the continued success of our key strategic pillars including investment in our stores, our online channel, growing our house brands and the introduction of exciting premium brands. The management team and I are looking forward to working closely with Nanjing Cenbest to take House of Fraser to the next phase of growth and I am sure our colleagues and brand partners will be as excited as we are about the opportunities this relationship will bring both in the UK and Ireland, as well as on a global scale. I would like to thank Don McCarthy and the Highland Group Holdings board for all of their support in making this business what it is today and I greatly look forward to this next stage in our development.”

As previously reported, Don McCarthy will be stepping down as executive chairman of House of Fraser upon completion of the transaction.

The official statement concludes: “The House of Fraser board, which has approved the transaction, notes that, on 28 March 2014, Sir Tom Hunter notified the company of the disposal of his shareholding of approximately 11% of House of Fraser. The transfer of these shares is subject to a shareholders’ agreement including rights of pre-emption. The board also notes that should the transfer of these shares to Sports Direct complete, the shareholding loses the rights to a Board position.”

Last weekend, Drapers reported that Sports Direct is reportedly prepared to sell the 11% stake it bought from Hunter to Nanjing as long as it makes a profit on the deal.

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