Peer sweetens DFS bid with tax pledge

Lord Kirkham, the chairman of DFS Furniture, is set to promise shareholders a portion of any future VAT rebates as he seeks to get board approval for a £465m offer to take the business private.

Lord Kirkham, the chairman of DFS Furniture, is set to promise shareholders a portion of any future VAT rebates as he seeks to get board approval for a £465m offer to take the business private.

The Tory peer's advisers are working to get the go-ahead to start formal due diligence before the sofa retailer's interim results, due on Thursday.

Negotiations are focused at the middle of a price range of 430p-435p per share, an improvement on the initial offer of 415p, which was rejected by the company's non-executive directors last month. However, the price still falls short of 450p, the level demanded by some institutional shareholders, and the price at which DFS shares have been trading on the stock market. They closed at 436p on Thursday last week.

Lord Kirkham is offering investors a substantial share of any cash released in any settlement of DFS's long-running dispute with Customs & Excise over VAT on interest-free purchases. Up to £50m could be released if the tax is ruled not payable when the case reaches the House of Lords in the next few years.

The two sides are working on a tax advantageous way of structuring any additional pay-out. Lord Kirkham hopes to secure the agreement of a special committee of DFS non-executives charged with securing the best deal for shareholders. The committee is chaired by Mike Blackburn, the former Halifax chief executive. Nomura, which is providing debt financing for his bid, would then be able to carry out due diligence.

The agreed price is likely to include the expected 7p per share interim dividend to be announced this week.

If successful, Lord Kirkham would be taking back control of the sofa business he founded 35 years ago. He and his family control about 10 per cent of the stock and, launching his bid last month, he said: "It's my business and I'd like it back, please."

He has argued that the public markets are an inappropriate place for the company, as it faces a competitive onslaught from new entrants to the furniture market such as Next and Marks & Spencer, but he is under pressure from shareholders to prove he is not taking the group private on the cheap.

Attention will be focused on DFS's statement on current trading and the outlook statement made with the interims. Under Takeover Panel rules this must be independently agreed by the company's accountants. The last statement on trading in February amounted to a profit warning.